The change could allow a faster rise for the yuan, which Washington and other trading partners complain is undervalued. But any increase will likely be too small to satisfy many critics and Beijing already has warned that future gains will be limited.
The central bank said it will allow the yuan to fluctuate by up to 1 percent in value against the dollar each day beginning Monday, up from 0.5 percent previously.
The bank took the unusual step of issuing a statement in English as well as in Chinese, clearly intending it for foreign audiences.
The United States and other governments say an undervalued yuan gives China's exporters an unfair price advantage, swelling its trade surplus and hurting foreign competitors at a time when other governments are struggling to lower unemployment.
Chinese Premier Wen Jiabao, the country's top economic official, said in March the currency might already have reached an "equilibrium exchange rate," suggesting more gains would be limited.