On July 6th, CNN reported that the storm of Brexit may have concealed something that is more worthy of market concern - China's currency has depreciated.
Since the Brexit, the exchange rate of the RMB against the US dollar has fallen by 1.3%.
Of course, this is already very small compared to the 12% devaluation of the pound, but the largest single-quarter depreciation of the renminbi against the dollar was born – a decline of nearly 3% in the second quarter.
On Tuesday, the exchange rate of the yuan against the US dollar was 6.67 US dollars, the lowest level since December 2010.
Many economists have said that they expect the renminbi to continue to weaken, but will adopt a gradual approach.
After the Brexit, investors bought security assets such as US Treasury bonds, making the US dollar significantly higher for most major currencies.
Brian Jackson, an IHS senior Chinese economist, explained that this provides China with the opportunity to devalue their currencies faster than normal. "They can say that this is not our fault, just blame the dollar is too strong - who makes the dollar a safe haven?"
Credit Co., Ltd. strategist Kit Juckes defined the recent renminbi market as a "secret depreciation."
However, it is not just the US dollar that China needs to worry about. Beijing has announced that they will determine the value of the renminbi based on a basket of currencies, and the sterling and euro in this currency basket were all suppressed after the Brexit, which is equivalent to forcing the renminbi to appreciate.
This has made China's economic policy makers a headache. The EU is China's largest trading partner. The relative strength of the renminbi will weaken China's export competitiveness, and China's exports are now in trouble.
However, the sudden depreciation of the renminbi is really terrible. In August last year and January this year, when such a thing happened, it immediately triggered a global market panic. Recently, the renminbi has fallen to its lowest point in more than five years, naturally attracting new attention.
Kay’s macro-marker Mark Williams pointed out in a research report last week: “If this continues to develop, it will trigger another round of global nervousness against the depreciation of the renminbi.” He said how the Chinese central bank operates. The exchange rate is the most important thing in China in the near future.
Once the renminbi depreciates sharply in a short period of time, it is equivalent to giving the market a right-handed punch after the Brexit left-hand hook. This will also trigger a political storm in the United States. Republican candidate Trump has been accusing China of manipulating currency and gaining unreasonable export competitiveness.
In addition, depreciation will force investors to look elsewhere for better returns, which means that the outflow of funds after the slowdown in China's economy will rise again. Analysts estimate that as much as $1 trillion of funds left China last year.
Fortunately, China still has a large amount of foreign exchange reserves, which can help resist the pressure on the renminbi. Last year, in order to support the exchange rate, they used a lot of reserves.
At present, China's reserves still have more than 3 trillion US dollars, but if capital outflows accelerate again, the fear of excessive consumption of reserves will be ignited again in January.
However, the People's Bank of China may have learned the lesson from the January change. Since then, officials have repeatedly stressed that there are no policy options for significant devaluation.
Kay's macro Williams believes that perhaps China is considering a different way to deal with the market's worries about the possible rise in the exchange rate of the US dollar.
On Monday, the People's Bank of China stated that it is necessary to "maintain the basic stability of the RMB exchange rate at a reasonable and balanced level."

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