"At the moment the yuan is weakening against the dollar but is remaining broadly stable relative to the PBOC's basket [of other currencies]," said Kit Juckes, senior currency strategist at Societe Generale, referring to the People's Bank of China.
Economists and strategist worry that China's devaluation will spark trading partners such as South Korea, Indonesia, Malaysia and Taiwan to intervene in order to weaken their own currencies, to boost their own export competitiveness and gain an edge against China in global trade.
China's "actions will flame the currency war in the region," said Kathy Lien of BK Asset Management.
However, Asian currencies have been weakening for the past two years, and the first week of 2016 was no exception.
South Korea's won fell double the amount of the yuan last week, down more than 3 percent of the year. Most Asian currencies including the Malaysian ringgit, Taiwan's dollar and Indonesian rupiah fell, with the notable exception of the safe haven Japanese yen.
Since Asian currencies are already weakening on their own, there may be less official central bank intervention and competitive "beggar thy neighbor" policies, which end up hurting growth and trade.
So far, all of this assumes China is in control and is trying to steer its currency sharply weaker to help boost its economy with exports. But there's another lurking suspicion that China is in fact not in control of this currency move at all.
There's a deep concern among investors that the yuan's drop is being driven by the market and a flood of money being yanked out of a slowing Chinese economy.
Last week, we learned that China's reserves fell by a record $108 billion in December, which signals the central bank is spending a lot of money to actually prop up the currency so it doesn't collapse under the wave of outflows.
It's a scarier prospect than the concerns about China's growth and exports.
However, in reality, strategists say the outflows may be short-lived and the policy response could very well inspire confidence instead of desperation.
For one, "it is typical in this time of year to have a seasonal outflows. Corporations front load their hedging for the year," according to Maher.