The People's Bank of China said in a statement that it would now allow the yuan to float closer to a market rate. It had been pegged to the dollar.

This is the beginning of a dangerous game.

The devaluation of the yuan is likely to lead to capital flight as investors withdraw their money from the country in expectation of further falls in the currency.

And the falling yuan also adds to the debt pile of some of the most indebted companies in the country as the devaluation makes interest payments on debt denominated in foreign currencies more expensive.

A country takes those kinds of risks only if it knows it's in a precarious situation.