Decline in Chinese Currency Continues

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China’s currency – the Renminbi – fell to its lowest point in almost a year this week, scaring investors just before finishing slightly higher on Friday. The Renminbi has been sliding continuously against the United States dollar since the latter half of 2013, reversing a trend of gradual incremental appreciation against the majority of all major currencies over the past eight years. According to inside experts, the slide is by no means incidental. Allegedly, China’s central bank has been intentionally creating a slide in the value of the Renminbi, in order to stop large capital flows from entering the country. Authorities in China are concerned that massive hot money inflows over the past year (an estimated $150 billion) could be detrimental as far as the government’s attempts to revamp the nation economy are concerned.

Chinese Governmental Reforms

This latest move precedes a series of high-level government planning meetings, which are in place to try and stimulate further economic reforms. A number of financial analysts are speculating that the Chinese government may soon move to widen the national currency’s daily trading band, a move that would make the Renminbi a far more flexible global currency. To some though, the recent instability is perhaps the Chinese government’s way of displaying the fact that the value can both rise and fall. Certainly a number of parties in the United States would like to see China loosen its grip on the currency, so this could be seen as pre-emptive strike of sorts. On paper, it definitely doesn’t look to have been the most stable period for the Renminbi. Since the start of January, it has lost roughly 1.5 per cent of its value against the American dollar, losing a full 0.3 per cent of that value in one day alone.

Speculators Hope to Capitalize

This recent and sudden drop has been a big surprise for investors, most of which have largely become accustomed to a gradual, steady rise in the Chinese currency. Only last year, it was one of the world’s strongest currencies, rising a full 3 per cent against the U.S. Dollar. But recently, the market has felt the sting of the currency’s fall, with real estate slowing down considerably since late 2013. Chinese authorities hold very tight control over the money that is allowed to enter the country, but global investors are still finding ways to funnel hot money into China, most commonly through trade financing deals. The motivation for speculators here is the hope that they might be able to capitalize on the benefits of a fast growing economy with a steadily appreciating currency, something that is very difficult to locate outside of China. Whatever the outcome over the next few months – whether it be a continuing decline of the Chinese currency or an about turn (as some analysts suggest), investors will certainly be tracking the relative rise or fall of the Renminbi via Currencies Direct.

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