Recently, China stock markets was chaos, overall market slump and RMB’s constant depreciation, subsequent problems have merged.
Actually, Chinese family average income only have like 6000RMB for a month. On Jan. 14, 2016, RMB central parity rate in the inter-bank foreign exchange market reached closed at one U. S. dollar for 6.5616 yuan. However, on Jan. 4, 2016, the counterpart reduced to one U. S. dollar for 6.5032 yuan. For the past less than 10 transaction dates, roughly 584 basis points have been evaporated. From the calculation from the initial transaction date in 2015, the index has declined by around 7.1%.
The depreciation means that more Chinese currencies will be used to change for equivalent US Dollars. If you need to change for 20,000USD, comparing with the index last year ( then RMB central parity rate stayed around one U. S. dollar for 6.1248 yuan), roughly additional 8,736 Yuan (close to 1,500USD) had to be consumed.
Since the around of RMB depreciation began in Aug. 2015, surrounding overseas students have begun to pay more attentions to the tendency of RMB exchange rate. Whether or not to have advance change for some tuition fees has become one of the hottest topics among these students. Considerations around when or how much exchange transaction should be done has forced each student here into like financial analyst.
Chinese currency isn’t free convertible one. The RMB exchange rate level only reflects its external value. It is bound to increase your foreign currency paying cost when doing overseas travel or study. For instance, I have the deposit of 10,000 RMB now. Certainly, the deposit amount remains unchanged. But to pay attention, the depreciation of RMB will sequentially cause new rounds of export growth, domestic growth, GDP growth and price inflation brought by consumption and investment power. Meantime, RMB’s internal value will have some change. Although the value of 10,000RMB is still unchanged, its actual purchasing power will be on the decline. Although, in the situation, such inflation may be not apparent and just a little bit will offset the deflation resulted from declining consumption and investment power from financial crisis
Additionally, exchange rate change can also affect international capital movement significantly. When RMB devaluing has been a constant trend, investors will strive to hold American dollar or other foreign currencies for wealth preservation. Thus, huge amounts of Chinese Yuan will be changed for foreign currencies, resulting in a bout of domestic vast capital outflow and “Capital Account Deficit”. Meanwhile, as the Yuan has being changed for other foreign currencies, it’s sure to make foreign exchange stay in short supply and further force RMB exchange rate to continuously on the drop.
As for our international students, we often make tricks like if someday RMB Exchange Rate fell to starting with 8, we’ll return home…., Why not out of school, it’ll spend decades of savings in your family in paying your one-year tuition….. Maybe these tricks will become realities someday.