Hong Kong (CNN)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.
However, the People’s Bank of China says the policy change was made in response to market forces, which will be allowed more control over the currency in the future.
So what’s going on?
Analysts seem divided on whether this is the start of a more flexible currency regime for China or an old-style devaluation. It appears to be a bit of both.
China’s economy has been struggling and a weaker currency would give it a boost, although most commentators say a steeper fall would be needed for a real impact.
“If this is about trade then 2% isn’t that big a deal — it doesn’t shift the competitive environment,” Jamie Metzl, senior fellow at the Atlantic Council, told CNN’s Quest Means Business show.