Keith Bradsher of the Times reports that China's central bank is imposing various controls on bank reserves and loans in order to reduce the quantity of credit in the economy. The economy appears to be suffering from an excessive supply of Yuan which creates inflationary pressure. The economy needs to slow down because too many Yuan are chasing too few domestic goods.

If the Chinese economy slows down Bradsher is afraid that it will no longer be the global engine of growth that it has been for the past year.

Which is to say that somehow selling more goods than you buy from the rest of the world creates a net increase in demand for goods produced by other countries. Wonks Anonymous is not quite sure how this one is supposed to work. Well at least the Chinese economy is booming so we should all be happy for them.

But Wonks Anonymous has a very simple idea that might help out here: Let the value of the Yuan be determined by, gasp, free markets.

The reason that there are so many Yuan in circulation is that the Chinese central bank is issuing them to buy Euros and Dollars at a fixed rate and this fixed rate gives way too many Yuan per Dollar or Euro. The central bank is intervening in currency markets to hold the value of the Yuan below the price determined by its ability to purchase goods and services.

If you convert a Dollar or a Euro into a Yuan you get a lot more goods and services than you would if you spent the Euro or the Dollar. This artificial exchange rate has to be maintained by issuing Yuan on demand. This artificial exchange rate - not superior Chinese productivity or virtue - drives China's trade surpluses.

The Chinese central bank tries bravely to soak up the excess Yuan but, given the need to keep the Dollar/Euro price of the Yuan down, it is forced to circulate new Yuan even as it picks up old Yuan. If the Yuan became any scarcer its value would rise and the glorious Chinese trade surplus would evaporate.

Meanwhile increased imports would take pressure off of Chinese prices and the declining supply of Yuan would discourage imprudent lending and speculation.

Which would still leave a very prosperous Chinese economy, able to purchase a wide variety of goods and services from other nations to fill the needs that its own productive capacity cannot meet.

Which might also result in growth in other nations besides China.