Matthew Yglesias explains how China’s tighter monetary policy could be good news for China and the U.S. both — depending on how the world responds:
China’s central bank announced that it would allow its currency, the renminbi, to trade up or down according to market demand for Chinese money — just in time for Rolling Stone‘s blockbuster article on Gen. Stanley McChrystal to obliterate all other issues from the news cycle. It’s worth recalling, however, what a big deal this was just a few weeks ago when Paul Krugman called on the Obama administration to “get tough” with China over trade. In March, Krugman had deplored the U.S. failure to threaten tariffs as a leading reason to despair over our economic prospects. Meanwhile, on June 13, China’s state-controlled press slammed members of Congress who wanted China to let its currency trade as a “bunch of baby-kissing politicians” who didn’t know what they were talking about. But now the storm has passed, we’re all friends again, and the problems are solved, right?