China's renminbi has tumbled to multi-year lows against a strong dollar but Beijing, so far, seems unperturbed.
The Chinese currency, also known as the yuan, on Tuesday hit its lowest level since offshore trading was introduced in 2010, falling to 6.7882 renminbi to the dollar in trading in Hong Kong. The latest slide means the dollar has gained more than 1.5% against the renminbi since September.
China's currency has come under pressure as investors fret over a possible decline in Chinese exports and a slowdown in its domestic economy, prompting increased capital outflows from the country. China's State Administration of Foreign Exchange said a net $44.7 billion of funds left China last month, the most since it began publishing records in 2010.
Markets tend to have an uneasy relationship with sharp declines in the renminbi. A dip in August roiled global stocks as investors fretted that it was a harbinger of China's deepening economic problems.
Yet investors seem to have taken the latest decline in their stride. That could be because the renminbi is holding its own against currencies other than the strong dollar, or because the weaker Chinese currency makes it less likely that the Federal Reserve will move to increase interest rates and risk further gains in the greenback.
Beijing's apparent calm at the depreciation may also be playing a reassuring role. China will maintain the renminbi "basically stable at a reasonable and equilibrium level," People's Bank of China deputy governor Yi Gang wrote in an article appearing in China's People's Daily on Tuesday. "There is no basis for persistent depreciation."
A lower renminbi is good for Chinese exports but will heap pressure on its domestic manufacturing sector, which is heavy reliant on imported raw materials, including coal and iron ore. These are priced in dollars.
China effectively has two exchange rates, one for offshore trading, which isn't regulated, and an onshore rate that is subject to a trading band and is fixed by the People's Bank of China. The onshore rate has also declined significantly this year, falling about 4.2% against the dollar.
Further falls in the renminbi may prove a boon for gold, Goldman Sachs noted this week. Chinese investors may increase gold acquisition as a way to hedge against their falling currency and as a diversification away from the property market, according to analysts.