Other G7 nations followed in the footprints. Fed chief Ben Bernanke has made a case for a second round of QE in the US, which will be accompanied by more of the same in the United Kingdom, and Japan.

Since QE, essentially, devalues a country's currency, it is also a form of "currency manipulation". It is not direct but an indirect currency intervention. Yet the net effect is the same.

QE encourages speculators to bet that the currency will decline in value. The large increase in the domestic money supply will lower domestic interest rates, which prepares the conditions for a carry trade (investors borrow low-yield currencies and invest in high-yield ones).

China and other emerging economies could thus use the logic of the House of Representatives to accuse the US and other G7 nations of "currency manipulation" that may deepen stagnation. As a result of QE, "hot money" is driven into the high-yield emerging economies, which is likely to further inflate dangerous asset bubbles in emerging Asia.

New rounds of QE may not do much to stimulate the economy, but they have the potential to disrupt global recovery. US critics argue that a new QE is more likely to debase the dollar and thus accelerate "debt monetization", inflating away the soaring US debt.

In October 2008, the joint threat of global financial meltdown and converging national interests prompted the G20 to form a common front. Today, different regions are recovering at different speeds. As a result, national interests have diverged and cooperation is more difficult.

In the US, Western Europe and Japan, China has been portrayed as the problem. This conveniently diverts public opinion from the deteriorating dollar.

Undue pressure on China is the wrong approach to the problem. China's current account surplus has declined, its domestic demand has increased dramatically; and its real exchange rate has appreciated by more than that of any other large country in comparison to the 10-year pre-crisis average.

Effective global rebalancing requires international and multilateral cooperation. The currency blame game has the potential to undo much of the post-crisis gains in the world economy. It is just another distraction from the painful long-term structural reforms that are vital for the global recovery.

The author is the research director of International Business at the India, China and America Institute, an independent think tank in the US.

(China Daily 10/19/2010 page9)