The US and others have long seen the yuan as undervalued

Although Beijing is still far from letting the yuan trade freely, it is now setting its core daily value from an average of quotes from 13 banks.

Analysts say Wednesday's move means the yuan is now more market-based and should slowly increase in value.

China has long been accused of deliberately undervaluing the yuan.

Slow-paced reform

The US has led the calls for yuan reform, saying China was keeping it artificially low to aid Chinese exports, which have surged over the last few years.

Although the yuan will now have a more realistic market value, Beijing will still only allow the currency to rise or fall by 0.3% a day against the dollar.

This fits in with China's repeated determination that it will liberalise the yuan at a slow pace, so as not to risk any destabilising effect.

In Wednesday trading, the yuan hit a record high of 8.0676 to the dollar.

"The new parity rate is more market-orientated as it is a summary from the market markers, though for the time being, it is still capped by the central bank's limit for the yuan's exchange rates," said a Shanghai-based dealer at a foreign bank.

Beijing is now using 13 banks, including foreign lenders Citigroup, HSBC, ABN Amro and Standard Chartered, to help it determine the daily core rate for the yuan.

These banks are now also able to carry out limited over-the-counter trading in the yuan for the first time, offering real-time quotes against a number of foreign currencies.