As the Chinese yuan keeps weakening against the dollar, a question is becoming acute for Beijing: should China let the market take its course and permit a deep currency fall or should it keep burning its foreign exchange reserves to support the currency's value?
The debate over what Beijing should do about its currency is heating up as regulators' ambiguity over the question is becoming costly and unsustainable, particularly since the Federal Reserve raised interest rates.
Against Beijing's desire for a "controllable" depreciation, the government is losing control over capital flight, depleting foreign exchange reserve stockpile at an alarming speed, and failing to convince investors that there is "no fundamental basis for the continuous depreciation".
Yu Yongding, a renowned Chinese economist who sat on the central bank's monetary policy committee when the yuan was revalued in July 2005, said it was time for Beijing to reconsider the matter.
"The fear of the yuan's depreciation has become a burden for us," Yu told a forum over the weekend.
Yu, who for years has called for liberalizing the yuan's exchange rate over years, said China should give up foreign exchange interventions and safeguard its foreign exchange reserves so that China will "have sufficient ammunition" for future rainy days.
While Yu's view is not in line with Beijing's current policy, it is winning academic support.
Xu Sitao, the China chief economist at Deloitte, an auditing firm, said "the best strategy is to let the yuan fall in full, and the worst strategy is slowly depleting foreign exchange reserves".
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China's foreign exchange reserves have shrunk by nearly US$1 trillion since their peak in 2014, and there's no sign that the haemorrhage will stop in near future. To curb outflows, China has imposed capital account controls, restricting outbound investment and payment.
Xu said the administrative measures over capital outflows "will probably generate more negative impact" on the yuan as such measures hurt China's overall openness.
The monetary authority is walking a fine line – the People's Bank of China (PBOC) is tolerating a weakening yuan against the dollar as long as it does not fall too quickly. Meanwhile, Beijing is now hoping that the wind will blow in its favor again.
PBOC governor Zhou Xiaochuan told a Hong Kong delegation in Beijing that the country's measures were temporary for preventing capital flight and restoring calm to the currency markets, according to Hong Kong Monetary Authority chief executive Norman Chan.
"Governor Zhou said the measures are for the short term," Chan said in Beijing, after leading a visit by the Hong Kong Association of Bankers to the Chinese central bank. "When the market conditions become stable, the capital flow will be back to normal."
But it could be a far cry from the reality.
In addition to Federal Reserve's rate hike, when Donald Trump takes office next month as U.S. president he is expected to propel U.S. domestic growth with more fiscal spending, tax cuts and infrastructure projects – policies that will drive the dollar higher and weigh on the yuan.
The dollar index to gauge the strength of the greenback against six major currencies has remained above 100 points. It could reach 120 in the coming two years, further squeezing Beijing's leeway to manage the yuan, said Jin Baisong, a researcher at the Ministry of Commerce.
"The Chinese authorities are too indecisive about the exchange rate policy," he said.
The top leadership agreed at the annual Central Economic Work Conference last week to keep the yuan on an even keel, showing Beijing's dislike of any dramatic yuan moves in a year that includes a leadership reshuffle.
To be sure, China's ongoing strategy of market intervention and stricter capital account controls has a point because a dramatic yuan depreciation, or a "one-off" fall, could cause panic.
Liao Qun, chief economist at China Citic Bank International, said China should continue to pursue a gradual depreciation of the yuan against the dollar.
"The pressure on yuan to fall is short-term ... from the Fed rate rise and Donald Trump's potential expansionary fiscal policy," Liao said. "China's economic fundamentals indicate that the yuan should appreciate in the long run ... it's unnecessary to cause market volatility because it could hurt confidence in the Chinese economy and the yuan's global ambition."