China’s central bank devalued its currency Tuesday in what it said was a one-time move to make rates more market-oriented.

The yuan is allowed to fluctuate 2 percent above or below a central point set daily by the People’s Bank of China (PBOC).  The PBOC cut the central rate by 1.9 percent as a result of the change that it said would enhance “the market-orientation and benchmark status of central parity.”

Beginning Tuesday, the PBOC said the central point would reflect the previous day’s closing price “in conjunction with demand and supply condition in the foreign exchange market and exchange rate movement of the major currencies.”

A drop in the yuan will make China’s exports cheaper overseas.  Tuesday’s move follows the announcement that July exports were down more than 8 percent from the same time last year.

Earlier this year, the IMF said China’s currency is no longer undervalued given its recent appreciation, but urged the government to pick up the pace in loosening controls on the exchange rate.

Yuan appreciation against the currencies of China’s major trading partners, especially the U.S., has been a subject of hot debate for years. The U.S. has accused China of keeping the yuan low to encourage exports, an accusation China denies.
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