One of the strangest things about China’s shock currency devaluation is that nobody outside the government’s secretive HQ in central Beijing really knows why they’ve done it. Since China slashed the value of the yuan against the dollar, the financial world has been forced into a guessing game: do they mean to start a currency war with the US and their Asian rivals – or are they just making a tactical response to a tricky situation?

It’s a question not just with global ramifications but parochial ones. When Yvette Cooper slammed Jeremy Corbyn’s call for “people’s quantitative easing” – printing money and spending it on infrastructure instead of debt – she was, in her own way, plunging Labour into the same debate as the wider one triggered by China.

The strategic question is – for the world, for China and for Britain – will unconventional monetary policy cure the post-2008 hangover or will it have to get more unusual and, to continue the hangover metaphor, more purgative? To understand what is at stake, you first have to understand QE. Normally central banks use interest rate cuts to stimulate growth, accepting the concomitant fall in their currency’s exchange rate as a “nice accident” – since overt currency manipulation is out of order.

When interest rates approach zero – as they did in the slump that followed 2008 – you have to print money. This, too, all things being equal, will collapse the value of your currency some more and you get an even nicer accident: you steal some growth from anywhere that is not printing money. America and Britain did it first, in early 2009; Japan waded in massively in 2012 and the eurozone finally did it, in the teeth of German resistance, in January this year.

Economists have always feared that, once everybody starts printing money, reducing the effectiveness of the growth-stealing game, one player would break ranks and turn the “nice accident” of lower exchange rates into an overt policy. If that player is massive – like China – and has massive overcapacity of goods, services and labour, the impact would be to export stagnation to the rest of the world.

On top of that, once everybody is doing QE, the world’s ability to respond to crisis is reduced. What you ideally want, if another slowdown or bank crash or country bankruptcy happens, is for interest rates to be positive (so you can cut them again); and for government debts to be reduced – along with the debts of the private sector and households. But global debts now stand at $200tn – three times world GDP, interest rates are close to zero and, worryingly, inflation is closer to zero than 1% in most of Europe and the US, and at an eight-year low in China.

So the question Corbyn raised by proposing “people’s QE” is legitimate – whether you agree with the answer or not. It is, in essence, “what do you do if QE stops being effective?” It is the same question that haunted former US treasury secretary Larry Summers when he warned in 2013 of “secular stagnation” – arising from the fact that QE can’t respond to a new crisis as effectively as the old, traditional methods of interest rate cuts can.

Done traditionally – by buying government bonds on the secondary market – QE is slow and “sticky”. It works by forcing investors to move their money to riskier areas – construction, the stock market, property – and revives growth through first reviving the net worth of people who own wealth. If it ceases to function – because somewhere else in the world one of your trade partners is doing their utmost to steal your growth – then you have to start thinking unconventionally. You could, as Corbyn suggests, print money and use it to finance infrastructure spending; you could – as former Federal Reserve chairman Ben Bernanke once suggested – drop it from a helicopter for people to spend. Or you could use the printed money to write off existing government debt.

It is all possible (so long as you have your own currency) – but once you do it, you have obliterated the carefully crafted boundaries between monetary and fiscal policy; and you are engaged in an overt currency policy.

Yvette Cooper was right to say, “QE is a special measure” – but when she listed the supposed negative impacts of Corbyn’s demand for a more radical version, two of them were actually benefits: higher inflation and a weaker pound. Inflation helps wipe out the debts faster; a weaker pound steals growth back from countries manipulating their currencies to gain trade advantage.

Of course the global downside is that monetary competition is a negative sum game. As economic historian Charles Kindleberger pointed out, in his definitive account of the Great Depression, competitive devaluations made the problem worse. Today – because so much of government and corporate debt is cross-border, and because there’s so much international travel – an outbreak of monetary rivalry would feel much more “hostile” to ordinary people than it did as the gold standard collapsed in the early 1930s.

So in a way, the Chinese currency gambit and Labour’s debate on QE are straws in a bigger wind of change.

We are facing the emergence of questions the old textbooks do not answer: what is your overt and active monetary policy and what is the target exchange rate of your currency? These are harder to answer in countries that try to keep central bank policy at arm’s length from government – like most of the western world – and easier in countries where the government is prepared to buy shares to force the stock market up, as in China in July.

It was HSBC economist Stephen King who, in May, likened the world economy to a Titanic without lifeboats. Whatever the motivation of the Chinese devaluation, it was at the very least a clear signal: “We have a lifeboat.” And it prompts, for all wings of British politics, the legitimate question: “Where, should it be needed, is ours?”

Paul Mason is economics editor of Channel 4 News and author of Postcapitalism: A Guide to Our Future. Follow him @paulmasonnews