|Chinese boy looks at display of Chinese currency in Beijing|
The revaluation announcement from China's central bank came on the main evening newscast Thursday night, after Asian financial markets had closed.
The new rate for the yuan is 8.11 to the dollar, an increase of 2.1 percent from the previous peg of 8.28 yuan.
Starting Friday, the yuan will be allowed to trade in a tight band of zero-point-three percent up or down against a "basket" of international currencies.
A revaluation has long been demanded by the United States and the European Union.
Koon Chow, a currency strategist with Credit Suisse First Boston, says the change is expected to have limited impact on other Asian currencies.
"I haven't seen any further indication whether there's going to be a series of more steps or whether there's going to be a big range in which the basket can move. So therefore it's a very small move. It doesn't make a big impact on regional Asian competitiveness," he said.
Shortly after China's announcement, the Malaysian government released the ringgit's eight-year peg to the dollar.
Beijing's decision came after persistent pressure from its trading partners, in particular the United States, which claimed that the yuan's value made Chinese exports unfairly cheap.
On Wednesday, the chairman of the U.S. Federal Reserve, Alan Greenspan, repeated his view that it is in China's interest to allow its currency to have a freer market flow. He said continuing to peg the yuan to the U.S. dollar could cause serious problems for China's economy.
Chinese Prime Minister Wen Jiabao indicated in a speech to a recent business conference that his government intends to take a step-by-step approach to revaluation of the yuan.
The prime minister said the change in exchange rates will have far-reaching impact, and a careful approach will help ensure stability in China and the rest of the world.