The yuan currency has been strengthened, effective immediately, to a rate of 8.11 to the U.S. dollar ！ compared to the 8.28 it has been set at for more than a decade. The new trading regime will begin Friday, the government said in an announcement on state television.
China's decade-long policy of fixing the yuan to the dollar had drawn fire from Washington, which had accused Beijing of keeping the yuan artificially weak to boost the competitiveness of Chinese exports.
Some U.S. lawmakers had threatened tariffs if China didn't adjust its yuan trading scheme.
The yuan will now be allowed to trade in a tight 0.3 percent band against a basket of foreign currencies, the government said. It didn't say which currencies.
It said the central bank would announce the yuan's closing price each day, and that rate would be the midpoint of the next day's trading band.
The announcement was a surprise and came on the government's main evening newscast.
Chinese leaders have been saying for years that any adjustment to China's currency policy would be based on domestic economic needs and not foreign pressure.
China had resisted changes, saying its fragile banking system wasn't ready to let its currency float freely.
Shortly after China's announcement, the Malaysian government said it is severing peg of its currency to U.S. dollar, replacing it with manged float.