Picture it: rumours of a renminbi devaluation keep growing. Residents rush to open accounts offshore as experts warn Beijing will get off on the wrong foot with a relatively new US administration if a big depreciation happens. Official denials are made regularly — until a devaluation of about 50 per cent follows in short order.
That was China in 1994. Today the idea of a similarly brutal, if smaller, one-off move is gaining some credence among strategists and traders as authorities battle to contain the exodus of capital as the renminbi weakens. Proponents, a group which includes advisers to Beijing, have suggested a 20 per cent devaluation would be sufficient.
The gradual decline in the renminbi may be preferable for investors who recall the shock of the sharp depreciation of August 2015 but that has not stopped a relentless flow of capital out of the country.