The Chinese central bank, which fixes the currency every morning, set the midpoint rate for the renminbi at 6.3306 per dollar, 1.6 per cent weaker. That follows a move by the PBoC on Tuesday which allowed the currency to weaken 1.9 per cent against the dollar.
Over the last decade China's currency has grown stronger against the dollar, a trend which the PCoB now appears to be trying to reverse.
The move has been seen as a last-ditch effort by Chinese policymakers who are trying to aid falling exports on the back of weak economic data. Further indication of a slowdown in China's economy came today, with industrial production data showing year-on-year growth of six per cent, down from 6.8 per cent in June.
Read more: China urged to free up yuan exchange rate
Asian markets fell on the news, with Japan’s Nikkei closing down 1.45 per cent and Hong Kong’s Hang Seng falling 2.01 per cent.
But the International Monetary Fund praised the move as allowing the renminbi to become more open to market forces, labelling the new mechanism as "a welcome step".
In a statement the IMF said:
Greater exchange rate flexibility is important for China as it strives to give market forces a decisive role in the economy and is rapidly integrating into global financial markets.
We believe that China can, and should, aim to achieve an effectively floating exchange rate system within two to three years.
Brent crude oil was trading down on the news, close to $49 a barrel.