Vincent Chan, the head of China Research Investment Bank Division at Credit Suisse in Hong Kong, says the change will have little affect on the world's financial fortunes.

"One word. Over reaction," said Chan. "Everybody seems to be getting hysterical about the appreciation. But they need to ask the question – how much is it going to really appreciate? At 5 per cent per annum, it's basically a non event."

Chan says the move will have more political significance.

The announcements by China's central bank came just a week before leaders of the world's 20 major economies gather in Toronto, Canada, for a two-day meeting. Chinese president Hu Jintao will attend the G-20 summit, where China's exchange rate policies are expected to be an agenda item.

U.S. and European politicians have long argued the yuan is undervalued, giving China an unfair trade advantage.

U.S. President Barack Obama welcomed China's decision, calling it a "constructive step".

China's state media have been ordered by the government to play down the announcement.

Many Chinese see the move as Beijing bowing to U.S. demands.