China said Thursday it will no longer peg its currency to the US dollar but instead let it float in a tight band against a basket of unspecified foreign currencies.
The yuan 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 -- and the new trading regime will begin Friday, the government said in an announcement on state television.
The valuation of the yuan against more than one currency will now see the Chinese currency rise or drop in tandem with the dollar as it appreciates or declines against other currencies.
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 undervalued by as much as 40 per cent to boost the competitiveness of Chinese exports.
Some US lawmakers had threatened to impose tariffs if China didn't adjust its yuan trading scheme.
The yuan will now be allowed to trade in a tight 0.3 per cent 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, coming 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.
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