The Chinese government said Thursday it will scrap its currency's fixed exchange rate against the U.S. dollar and let the yuan float in a tight range against a group of currencies.

The change is seen as a first step in eventually letting the yuan float freely.

The United States and other trading partners have urged China to let its currency rise, arguing that keeping the value too low gives the Chinese an unfair competitive edge to their products in world markets.

Canadian Finance Minister Ralph Goodale said the members of the G7 have been saying that increased flexibility in the Chinese exchange rate would benefit the Chinese economy and would contribute to greater stability in the global economy.

"It remains to be seen exactly how the new system will work and how much flexibility it will provide," Goodale said in a release. "But this is an encouraging first step."

The U.S. administration also welcomed China's change of position.

"As we have said, reform of China's currency regime is important for China and the international financial system," said Treasury Secretary John Snow.

The new trading regime goes into effect on Friday, the Chinese government said in an announcement on state television.

The yuan will be revalued to 8.11 per U.S. dollar. Previously, the yuan had been pegged at 8.28 per U.S. dollar where it had been almost unchanged since the Asian financial crisis of 1997/98.

"It may be baby steps, but it is a long awaited adjustment that is needed in the global financial marketplace to help reverse the tremendous imbalances on trade and savings..." said Aron Gampel, deputy chief economist at Scotiabank.