China's currency has fallen 3.5% against the dollar in the past two days, setting the currency up for its largest two-day decline in decades.
On Tuesday, the People's Bank of China surprised markets by executing a one-time 2% devaluation of the yuan and changing the way it's traded. The currency's losses mounted Wednesday.
The shock move has rattled financial markets and Republican presidential candidate Donald Trump told CNN that it could be "devastating" for the U.S. economy.
Trump and others say China is purposely weakening the yuan, also known as the renminbi, to lower the cost of its exports.
This has fueled talk of a currency war, where countries use exchange rates to keep their products competitive on global markets.
We just don't know what the real motivations of the Chinese leaders are."
Mitul Kotecha, senior foreign exchange strategist at Barclays Capital in Singapore, says it's a "revolutionary move" and will allow the market a greater hand in determining the yuan's value.
Each day, the People's Bank of China sets the yuan's exchange rate and allows it to trade in a 2% band around this point.
Until Tuesday, the central bank had total control over where the midpoint was set. From now on, the midpoint will be based on the previous day's closing price.
"Primarily this is a liberalization attempt," he says. "But it's a clever move by China as it allows them to kill two birds with one stone."
China will also be hoping that the move will help in its quest to get the yuan included in an elite grouping of currencies used by the International Monetary Fund.
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