China's shock move to trigger the biggest one-day decline in its currency for more than 20 years is evidence that the currency wars are still live.

It's also a timely reminder that the Federal Reserve's seeming determination to raise interest rates next month risks propelling the dollar even higher, to the dismay of U.S. companies already struggling to maintain exports.

Here's what Fed officials will see when they get to their desks this morning and check out what's been happening in the currency markets while they were sleeping:

By cutting its daily reference rate for the yuan by a record 1.9 percent, the Chinese central bank is taking big risks, both politically and economically.

The Chinese authorities know that Chinese companies owe the rest of the world more than half a trillion dollars in bonds and loans denominated in dollars and euros; Bloomberg reporters Lianting Tu and Christopher Langner calculate that today's move could add $10 billion to that cumulative corporate debt burden.

But the overseers of China's monetary policy, who are charged by the government with delivering economic growth of 7 percent this year, are clearly more concerned by the 8.3 percent drop in Chinese exports in July.

Currency Wars

Today's decision "raises the distinct possibility of a new and increasingly destabilizing skirmish in the ever-widening global currency war," according to Stephen Roach, the former non-executive chairman for Morgan Stanley in Asia who's now a senior fellow at Yale University.

Economists at JPMorgan called the move a "Pandora's box" which China's neighbors will view as a "competitive devaluation."

It's the U.S., though, that might take the most offense at the devaluation. U.S. companies have bemoaned the strength of their domestic currency. Walt Disney Co. was the latest to report that currency-market shifts dented revenue, saying last week that it suffered a $100 million shortfall at Disneyland Paris.

The dollar has been on a rampage for four years.

I've written before that every country can't simultaneously have a declining export-boosting currency, any more than you can mix heavy-metal music by making everything louder than everything else. 

The dollar has gained against its peers partly because other countries have engineered weaker currencies for themselves, but also because its economy is perceived to be improving and the Fed is one of the few central banks in the world contemplating pushing up borrowing costs and deposit rates.

Officials in the U.S. would be forgiven for wanted to avoid a further surge in the dollar that would signal the country is surrendering to its opponents in the currency wars. If other nations' plans for participating in the global economic recovery is yet more currency-market manipulation, the governors of the Fed might reconsider that September rate increase after all.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author on this story: Mark Gilbert at [email protected]