Yuan takes another major step toward full convertibility

Banks can now set their own exchange rates for the yuan against the dollar in over-the-counter transactions - another step toward freeing the exchange rate from government control.

Banks were previously required to price the yuan/dollar rate they offered retail clients within 3 percent in either direction of the Chinese central bank's daily middle rate.

"The liberalization of the retail market implies that the People's Bank of China believes that the yuan has now reached equilibrium," said Cao Yang, an analyst at the Shanghai Pudong Development Bank Co Ltd.