China scrapped the yuan's peg to the US dollar today and tied it to a basket of currencies, the central bank said.
The new yuan rate versus the dollar revalues the currency by 2.1 per cent, to 8.11 per US dollar as of 11am GMT, the central bank said on its website ( www.pbc.gov.cn).
The move is seen as the first steps in highly anticipated reforms aimed at letting the currency float freely.
Under the previous policy, the yuan was kept near 8.28 per dollar, a virtual peg that had led the United States and other countries to complain that China's currency was unfairly undervalued.
The yen gained 1.3 per cent against the dollar following the announcement following pressure from leading industrialised countries.
The Japanese currency gained about one yen against the greenback and the euro in morning trading in London, to 111.67 yen and 135.73 yen, respectively.
The changes came amid intense speculation that Beijing would overhaul its currency regime, which had been basically unchanged since the 1997/98 Asia crisis.
China's newly announced shift to a basket currency system will help reduce volatility of the yuan exchange rate, a central bank spokesman said.
Any sharp swing in the yuan's exchange rate would hit China's financial system, and therefore would not be in Beijing's interest, a central bank statement quoted the spokesman as saying.