Let me tell you: depreciation expectations have a huge impact on one critical factor—reinvestment! Once expectations of depreciation set in, every investor will convert their daily earnings into dollars and gold to hedge against losses. That's exactly why India has seen such persistent capital outflows. Now look at what China did: on the eve of opening up and integrating into the global economy, it slashed the official exchange rate overnight from 1:3 to 1:10. At the time, most Chinese people had little exposure to the outside world, so they barely noticed the devaluation. But to foreign investors, that sharp devaluation created a 40-year horizon of appreciation expectations. China became like a giant sponge, sucking in endless global investment—and as history shows, those investors didn't end up disappointed.
