The easing of currency restrictions by Chinese authorities is opening up opportunities for investors that could dramatically increase within the next few years.

That was the clear message for clients and staff of HSBC Bermuda, who were told in a briefing at the bank’s “Bermuda China Day” yesterday that the Chinese currency, the renminbi, is on track to join the US dollar and the euro as a reserve currency.

David Pavitt, the HSBC Group’s head of emerging markets foreign currency trading, said the renminbi was going through a process of “internationalisation’.

“Basically, that means that you will be able to buy, sell, lend and borrow renminbi freely across international borders — but we’re not there yet,” he said.

The process had three phases, he said. First it needed to be a currency in which to settle international trades. In December last year, the renminbi overtook the euro as the second most widely used currency in international trade (after the US dollar).

Secondly, people had to be able to invest using renminbi and in the third phase it would become a reserve currency.

Mr Pavitt pointed out that just a few years ago, the exchange rate for the Chinese currency against the US dollar was fixed by the Chinese authorities — now it is allowed to trade within parameters that have recently been widened. The slow pace of change towards internationalisation was a result of the Chinese desire for stability, particularly the avoidance of social unrest.

“I look at the renminbi as the doorway between China and the rest of the world,” Mr Pavitt said. “And that doorway is opening wider.”

In its notes in the Bermuda China Day programme, HSBC Bermuda states that it expects progress to gather pace: “At HSBC, we think the currency will become fully convertible in the next two to three years, faster than many expect, paving the way for the renminbi to join the US dollar and the euro as a reserve currency.”

Angel Wu, senior trader, Asia Rates Trading at HSBC Global Markets, said the Chinese bond markets had grown very fast to 28.6 trillion renminbi ($4.6 trillion), driven by an economy that had been growing at a rate of more than seven percent for the past three decades.

She added that there been no difference between yields of government bonds and corporate bonds, because there had been no defaults — up until this year.

Those defaults had caused the “risk-free” government bond yield to fall sharply, she added.

Yields on one-year Chinese government bonds, as of April 2 this year, were 2.9 percent, she said, and 4.5 percent on ten-year bonds.

She noted that the government’s desire to avoid inflation and keep growth steady was behind its move to withdraw a large amount of liquidity from the banking system last year.

Li Yu, senior product manager and China specialist at HSBC Securities Services, said the market capitalisation of the Chinese stock markets was larger than markets in either Japan or the UK, but there were trading restrictions for overseas investors looking to participate in them.

The Qualified Foreign Institutional Investor (QFII) rules exemplified such restrictions. Among the rules are that no more than 20 percent can be held in cash. HSBC could help investors participate in the markets, she added, and could open up opportunities for investing in Chinese bonds — something she suggested may be of great interest to insurers.

The event will continue at the HSBC Harbourview building today, with a breakfast presentation, a lunchtime panel discussion and meetings with clients.