The Central Bank announced Thursday it would tie the yuan to a basket of currencies, the first step in the highly anticipated reforms aimed at letting the currency float freely.
The new yuan rate versus the dollar revalues the currency by 2.1 percent, to 8.11 per U.S. dollar, as of 1100 GMT, the central bank announced on its Web site.
The People's Bank of China says the daily trading price of the dollar versus the yuan will continue to be allowed to float within a band of 0.3 percent, while the trading prices of non-U.S. dollar currencies will be allowed to move in yet-to-be announced bands.
The People's Bank of China will make adjustment of the RMB exchange rate band when necessary according to market development, as well as the economic and financial situation.
It a statement the Central Bank says, "The RMB exchange rate will be more flexible based on market condition with reference to a basket of currencies."
Under the previous policy, the yuan was kept near 8.28 per dollar, a virtual peg that led the United States and other countries to complain that China's currency was unfairly undervalued.
China has faced increasing pressure from both the US and the EU to revalue its currency, with both threatening trade acting against China if the currency peg remained at its previous levels.
The changes come after intense speculation about when Beijing would overhaul its currency regime, which has been basically unchanged since the 1997/98 Asia crisis.