The Chinese yuan strengthened to a record high against the U.S. dollar on Friday to reach 6.5896 per dollar.

The central parity rate of the Chinese currency, also known as the renminbi (RMB), was set 101 basis points lower than Thursday's 6.5997, according to the China Foreign Exchange Trading System.

China's central bank announced in June 2010 it would further reform the yuan exchange rate formation mechanism to improve its flexibility.

On China's foreign exchange spot market, the yuan can rise or fall 0.5 percent from the central parity rate each trading day.

The central parity rate of the RMB against the U.S. dollar is based on a weighted average of enquired prices from all market makers before the opening of the market each business day.

China announced on Thursday that the nation's qualified businesses and banks could settle their overseas direct investment in yuan, a move that could expand the Chinese currency's global reach and ease excessive liquidity domestically.

On Jan. 11, China, for the first time, allowed residents of the eastern city of Wenzhou to invest abroad as individuals. An adult Wenzhou native is permitted to buy no more than 200 million U.S. dollars in foreign exchange per year under the scheme.

The following day, the state-owned Bank of China's New York City branch said on its website that it had begun offering yuan-denominated accounts in which holders could exchange up to the yuan equivalent of 4,000 U.S. dollars per day, with a limit of 20,000 U.S. dollars per year.

Trading on U.S. dollars becomes more active as the yuan kept rising, dealers said.