Malawi's central bank has devalued its currency, the kwacha, by 50% and scrapped its peg to the US dollar, in a bid to improve relations with donors.
The International Monetary Fund has long urged Malawi to cut the value of its currency, saying this would boost exports and reduce demand for imports.
However, ex-President Bingu wa Mutharika, who died in April, said devaluation would lead to inflation.
New President Joyce Banda is trying to persuade donors to restore aid.
One dollar is now worth 250 kwacha, up from 168
"The devaluation of the kwacha and the liberalisation of the foreign exchange market are expected to continue the government's efforts to reach agreement with the IMF," said Reserve Bank of Malawi Governor Charles Chuka, adding that this would hopefully lead to more donor funding in the next few months.
Economists say they do not expect the move to immediately lead to higher prices, as many businesses were expecting the move and were already using the new exchange rate.
In recent years, Malawi has run short of foreign currency after donors cut aid and demand fell for its main export, tobacco.
This led to a lack of fuel in the country.
Last week, President Banda said she did not want Sudan's President Omar al-Bashir, accused of war crimes, to attend a summit in July.
She says she feared the "economic implications" if Mr Bashir attended the African Union meeting in the country.
This was another about-turn on the position of her predecessor.
She has also fired Mutharika's widow, Callista, from her job as coordinator for safe motherhood, the AFP news agency reports.