This month I bet with a colleague that China would not in the next six months announce a single sweeping devaluation of the renminbi — say, 10 per cent or more. Given the difficulty of predicting what China will do let alone forecasting currencies — whose accuracy Alan Greenspan once likened to flipping a coin — the bet is a risk, not least since our bottle of wine forfeit pales next to the embarrassment of losing.
Attention on the renminbi has risen in recent weeks as it has fallen to a series of eight-year lows. Pressure will only intensify as China’s foreign exchange reserves look set to drop below the psychologically important $3tn level in the coming weeks. Next month too, China’s citizens will be able to take advantage of moving their annual limit of $50,000 offshore.
Physical outflow pressures have already been building: China’s reserves fell $70bn last month, their second-largest outflow this year. While up to half of that can be attributed to the dollar’s gains weakening the value of China’s non-dollar holdings, it still implies the People’s Bank of China spent $35bn last month to curb the renminbi’s depreciation.