U.S. officials have praised China's decision to no longer peg its currency to the U.S. dollar, ending the decade-long policy that many of Beijing's trading partners said was unfair.
U.S. Treasury Secretary John Snow called the revaluation a very positive development that is good news for China and the global economy.
"We welcome this announcement of [the] new mechanism they're putting in place to achieve greater flexibility in their currency," he said.
Under the mechanism, which begins Friday, China's central bank will determine the yuan's value against a basket of international currencies, and then allow that value to fluctuate by 0.3 percent.
Beijing also immediately strengthened the yuan's value by 2.1 percent to 8.11 yuan to the dollar. The yuan had been kept at 8.28 to the dollar.
Federal Reserve Chairman Alan Greenspan called the move a good start.
"It's the type of step that you would want to take when you've had a decade-long fixed structure," he said. "And so I think they've been cautious and I think admirably so."
Washington has long pressured Beijing to increase the value of the yuan and allow it to be traded more freely on currency markets.
Since 1995, China has held the yuan's value steady at 8.28 to the dollar. The policy kept Chinese exports cheap and contributed to the growing U.S. trade deficit with China that reached $162 billion in 2004. Tension over the mounting deficit has prompted some U.S. lawmakers to threaten raising import tariffs on Chinese products.
Secretary Snow said he is encouraged that the decision signals Beijing is preparing to allow market forces determine the value of its currency.
"I'm particularly struck by the commitment that the Chinese government has expressed to getting their currency into alignment with underlying demand and supply forces," he said.
Mr. Snow said the full implementation of China's new currency regime will be a significant contribution toward global financial stability.