China says the decision to devalue its currency is all part of the plan to reform the way it manages its exchange rate.
In fact in its statement the central bank said that while the intention was to keep the yuan "basically stable", market forces will be given a bigger role in the economy.
Analysts say that could indicate that there may be further devaluation of the currency ahead - although China says this is a one-off event to react to a "complex situation" which "is posing new challenges".
So why is this important?
Well, Washington has been pressing Beijing to allow its currency to reflect what it thinks is its fair, higher value - the US argues that China keeps its exchange rate unfairly low so as to keep the price of its goods more affordable when they're sold overseas.