The Chinese renminbi fell to its lowest level in almost a year on Friday. China’s central bank has been engineering this decrease in value since the new year in an effort to deter and punish speculation and to stop so called “hot-money”, or huge capital flows from entering the country. Analysts estimate around $150 billion in hot money entered the country last year.
According to Wang Tao, the chief economist at UBS, “It’s hard to completely stop hot money from flowing into China. Offshore, the interest rates are low; Chinese interest rates are really high. And if the exchange rate is appreciating, investors view it as a win-win.” The central bank is weary of these huge cash flows because of the potential inflationary effect they may have, which would drastically hinder the Chinese governments efforts to revitalize the economy and fix its banking system. With a meeting of high-level officials set to take place soon, analysts believe that the government is set to expand the the currency’s daily trading band, which would allow for greater fluctuations in both the positive and negative directions.