Switzerland's getting into a currency war with us? Brilliant!

Spend, spend, spend.

It's sort of like the Baader-Meinhof Phenomenon – you hear a relatively rare phrase once, and then it starts springing up all over the place. Today's is "currency war".

At the Telegraph, Ambrose Evans-Pritchard has uncovered evidence that Switzerland and the UK are "effectively fighting a 'low intensity' currency war against each other". He writes:

It seems you can’t debase your coinage these days even if you try.

The Bank of England is straining every sinew to drive down sterling with quantitative easing, and what happens?

The Swiss National Bank trumps Threadneedle Street with an outright blitz of Gilt purchases. They just print it, and buy.

Switzerland is one of the most forthright currency manipulators out there at the moment, as it struggles to hold its franc above 1.20 to the euro. This chart, from the ECB, shows the effect of that fight:

Although currency speculators have been battering at the floor, the Swiss central bank has held to its promise (but it did drop down to 1.1997 francs for a few minutes back in April last year) by buying a metric shittonne (technical term) of eurobonds. Now that it owns so many of those, it is trying to diversify its holdings into other currencies, "allegedly into Aussies, Loonies (Canada), Scandies, Won?, Real? but above all pounds" according to Evans-Pritchard.

The Swiss are doing it because a weaker currency, particularly relative to the Eurozone, is good for them – it boosts deficits and interest rates, both things which ought to keep them out of recession. But we want the same thing. Hence: currency war.

In the US, meanwhile, some economists have argued that America needs to get tough on currency manipulators. The Washington Post's Dylan Matthews writes:

In a new working paper, Joe Gagnon and Fred Bergsten at the Peterson Institute argue not just for import tariffs like those Schumer advocates, but for a full-frontal assault on countries that are manipulating their currencies… Specifically, they want the U.S. to offer the eight worst currency manipulators — China, Denmark, Hong Kong, Korea, Malaysia, Singapore, Switzerland and Taiwan — an ultimatum: Stop manipulating, or else we’ll do the following:

Buy up exactly as many assets in their currencies as they have in ours… tax the earnings from dollar-denominated assets as punishment… treat currency manipulation the same way we treat export subsidies for the purposes of imposing retaliatory tariffs [or] take the manipulators to the World Trade Organization (WTO).

The first of those options is an archetypal currency war. Gagnon and Bergsten argue that making that threat would "currency manipulation, make the dollar less expensive, and thus promote U.S. exports"; the standard refrain of those entering currency wars.

And Matthews offers the standard objection:

The risk is that Gagnon and Bergsten’s policies would only provoke the targeted countries, leading them to respond with still more manipulation and/or tariffs on U.S. goods, setting off a full-fledged currency and trade war that just leaves all parties worse off.

Except that that's not really true (well, the trade war part is). A full-fledged currency war – whether it's between America and all eight of its named "manipulators" or Britain and the Swiss – is indeed a zero-sum game when it comes to the actual level of the currencies. Both GBP and CHF cannot weaken against each other at the same time, definitionally.

But while the war is pointless, the act of fighting it could be a good thing. The Atlantic's Matthew O'Brien writes:

The downside of devaluation is that no country gains a real trade advantage, and weaker currencies means the prices of commodities like oil shoot. But and here's the really important part devaluing means printing money. There isn't enough money in the world. That's the simple and true reason why the global economy fell into crisis and has been so slow to recover. It's also the simple and true reason why the Great Depression was so devastating. We know from the 1930s that such competitive devaluation can turn things around.

War is good if it creates more of something you want. A "charity war" between friends is good because it leads to more donations. A currency war is good because it leads to more money. If war is politics by other means, a currency war is stimulus by other means.

Think of it by analogy to fiscal stimulus. Sometimes, a government decides to do that directly. But just as frequently – say, during the Second World War – it embarks on a massive deficit-funded spending programme because it feels it has to, and it just so happens to be macroeconomically beneficial as well.

So please, Switzerland, keep buying British bonds. It will force the Bank of England into making the moves it ought to have done a long time ago.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Why relations between Theresa May and Philip Hammond became tense so quickly

The political imperative of controlling immigration is clashing with the economic imperative of maintaining growth. 

There is no relationship in government more important than that between the prime minister and the chancellor. When Theresa May entered No.10, she chose Philip Hammond, a dependable technocrat and long-standing ally who she had known since Oxford University. 

But relations between the pair have proved far tenser than anticipated. On Wednesday, Hammond suggested that students could be excluded from the net migration target. "We are having conversations within government about the most appropriate way to record and address net migration," he told the Treasury select committee. The Chancellor, in common with many others, has long regarded the inclusion of students as an obstacle to growth. 

The following day Hammond was publicly rebuked by No.10. "Our position on who is included in the figures has not changed, and we are categorically not reviewing whether or not students are included," a spokesman said (as I reported in advance, May believes that the public would see this move as "a fix"). 

This is not the only clash in May's first 100 days. Hammond was aggrieved by the Prime Minister's criticisms of loose monetary policy (which forced No.10 to state that it "respects the independence of the Bank of England") and is resisting tougher controls on foreign takeovers. The Chancellor has also struck a more sceptical tone on the UK's economic prospects. "It is clear to me that the British people did not vote on June 23 to become poorer," he declared in his conference speech, a signal that national prosperity must come before control of immigration. 

May and Hammond's relationship was never going to match the remarkable bond between David Cameron and George Osborne. But should relations worsen it risks becoming closer to that beween Gordon Brown and Alistair Darling. Like Hammond, Darling entered the Treasury as a calm technocrat and an ally of the PM. But the extraordinary circumstances of the financial crisis transformed him into a far more assertive figure.

In times of turmoil, there is an inevitable clash between political and economic priorities. As prime minister, Brown resisted talk of cuts for fear of the electoral consequences. But as chancellor, Darling was more concerned with the bottom line (backing a rise in VAT). By analogy, May is focused on the political imperative of controlling immigration, while Hammond is focused on the economic imperative of maintaining growth. If their relationship is to endure far tougher times they will soon need to find a middle way. 

George Eaton is political editor of the New Statesman.