The recent depreciation of the renminbi, China’s currency, exposes crucial vulnerabilities within the world’s second-largest economy as it faces escalating trade tensions with the US. The currency posted its biggest ever monthly fall against the US dollar in June and lost more ground this week before recovering a little on Wednesday. Although its 3.4 per cent slide since the start of June is no rout, it marks a departure for a currency often seen as an anchor of stability for Asia and other emerging markets.

As Beijing assesses its options for shoring up the renminbi, it finds itself between a rock and a hard place in three important respects. If the People’s Bank of China (PBoC) intervenes strenuously by selling its dollars to buy renminbi, its stash of foreign currency reserves — which stood at $3.11tn in May — could quickly burn through the psychologically important $3tn level. If that happens, it could revive memories of 2015, when capital outflows swelled to a torrent.

Beijing could instead raise domestic interest rates, thereby making the renminbi more attractive to investors relative to the dollar. Given that the convergence in US and Chinese bond yields this year has helped motivate capital outflows, that might indeed shore up the renminbi. But it also risks weakening an already slowing Chinese economy just as a trans-Pacific trade war starts to bite.