Why is ‘cracking seven’ a big deal for China’s currency?
If China’s renminbi slips past Rmb7 a dollar — “cracking seven” in trader talk — it would take the currency to a level of weakness not seen since the depths of the global financial crisis 11 years ago. It would also breach a widely recognised floor that China’s central bank has previously defended during bouts of sharp depreciation last year and in 2016.
The defence mounted in 2016, in which China was forced to burn through some of its foreign exchange reserves, spending as much as $107bn in a single month, followed a shock devaluation from the previous August that marked the currency’s biggest one-day drop in decades. While it delivered a shot in the arm to the country’s export-led economy, it spurred substantial capital outflows and drew accusations of currency manipulation from critics in Washington and put it under regular scrutiny from the US Treasury Department.