The head of the International Monetary Fund, Christine Lagarde, Saturday welcomed Beijing's move to let the yuan trade in a wider band against the dollar in a major step towards currency reforms.
"I would like to welcome this important step by the People's Bank of China to increase the flexibility of their currency," Lagarde said in a statement, after China's central bank announced it would loosen its currency controls.
"This underlines China's commitment to rebalance its economy toward domestic consumption and allow market forces to play a greater role in determining the level of the exchange rate," Lagarde added.
The yuan is currently allowed to trade 0.5 percent on either side of a midpoint price set by the central bank every trading day.
The new rules will come into effect on Monday and allow the currency to fluctuate by up to 1.0 percent either side, China's central bank said in a statement.
Beijing's trading partners have long criticized its yuan exchange rate, saying it is kept artificially low, fuelling a flow of cheap exports that have helped trigger huge trade deficits between some countries and China.
However, that pressure has eased since data this year showed China's trade balance with the rest of the world has shifted, ending a long period of huge trade surpluses based on low-cost labor and a cheap yuan.