But the report says that six nations-China, Germany, India, Japan, South Korea and Switzerland-will remain on a watch list subjecting them to added US pressure to lower trade surpluses.
The measures being adopted by the government suggest the PBOC may be moving towards a yuan foreign-exchange regime that is flexible enough to make China's capital account more accessible.
"With US Treasury yields beginning to creep higher again, President Trump hinting at further tariffs on Chinese goods and the CSI 300 trading at close to its lowest level since the summer of 2016, the continued risk of a fresh bout of weakness (in the yuan) can not be ignored", said Simon Derrick, chief currency strategist at BNY Mellon.
The yuan fell 0.2 per cent to 6.9424 per dollar in the offshore trade, not far off 1-1/2-year low of 6.9587 touched in August.
Beijing is not a currency manipulator but China's exchange rate practices and the yuan's recent decline are of "particular concern", US Treasury Steven Mnuchin said on Wednesday.
America incurred a goods deficit of $375.9 billion with China previous year, the largest imbalance with any nation.
The new report said America's trade deficit has continued to widen this year, partly reflecting stronger growth in the United States than many other nations, but also "persistent trade and investment barriers in many economies, along with sustained undervaluation of many currencies".
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The yuan weakened following the USA announcement.
"We will not engage in competitive devaluation, and will not use the exchange rate as a tool to deal with trade frictions", Yi said at a meeting of the International Monetary and Financial Committee. Gao Qi, FX strategist at Scotiabank, indicated he expects the yuan to keep weakening, saying it would "likely continue trading with a 6.95 resistance" following the Treasury decision. The increased foreign holdings come ahead of the anticipated inclusion of Chinese government and policy-bank bonds in global bond market indices from next April.
"Treasury is working actively across a broad range of areas to help ensure that trade expands in a balanced way that protects US firms and workers against unfair foreign trade practices".
"Markets will likely refocus its attention back to US-China trade uncertainties and mid-term elections on 6 November".
In a report issued Wednesday, the administration says no country meets the criteria to be labeled a currency manipulator. With a lack of a concrete improvement in US-China relations, it is likely that the Yuan will stay persistently weak, Ms Pan noted.
"One of Trump's most emphatic campaign promises was to declare China a currency manipulator on Day One", said Lori Wallach, director of Public Citizen's Global Trade Watch.
But some say the central bank, confident it can control any side effects, might allow the market to carry the yuan gradually lower. The currency temporarily steadied but fell the following year.
"The US dollar should remain supported in the coming weeks, which would continue to exert [downward] pressure on the yuan and it seems China is not too concerned about this", Cheung said.