China’s quest to transform the renminbi into an international reserve currency – and thereby challenge America’s dominance of the global monetary system – may take decades, if it happens at all. But this month, for the third time this year, China took another big step in that direction.

Regulators lifted a raft of restrictions blocking the free flow of renminbi in Hong Kong, the semi-autonomous region that is open to international investors and is the designated launchpad for the renminbi’s global expansion.

Any company in the world can open a renminbi bank account in Hong Kong and exchange the currency as they please, while financial institutions in the former British crown colony are free to create investment products denominated in the Chinese currency.

There are also no longer any restrictions on the type of corporations that can be granted renminbi loans or on the type of loans that can be extended – a key liberalisation that could eventually trigger an offshore renminbi credit boom.

“[The new rules are] a big step in promoting the international use of the renminbi,” said Frances Cheung, a strategist at Crédit Agricole in Hong Kong.

As soon as the measures were announced, Hong Kong banks unveiled a slew of renminbi-denominated products, scrambling to gain a foothold in a market they hope will surge over the coming years.

But the liberalisation has ramifications far beyond HSBC, Standard Chartered and the other banks that sense large profits on the horizon.

It comes after two other big steps in June, when China cut the renminbi’s de facto peg to the US dollar and dramatically expanded the year-old programme that allows Chinese companies to settle cross-border trades using the renminbi.

“Given the rapid succession of the last three moves, it appears the People’s Bank of China may be revving up the renminbi internationalisation process even faster than we had originally anticipated,” said Donna Kwok, an economist at HSBC in Hong Kong.

The latest move in Hong Kong is significant because it allows the creation of new ways for foreign companies to hold – and invest – any renminbi that they receive through trade with China.

The current dearth of opportunities for international holders of the renminbi to invest their money is seen as one of the biggest obstacles to widespread adoption of the Chinese currency.

The growing availability of renminbi-denominated investment products in Hong Kong would play a “critical role” in boosting offshore usage of renminbi, said Enoch Fung, economist at Goldman Sachs.

As things stand, Hong Kong’s renminbi banking system is minuscule. There were just Rmb85bn ($12.5bn) of renminbi deposits in Hong Kong as of May – amounting to just 1.5 per cent of the territory’s total deposits.

But that figure is expected to grow rapidly as more and more cross-border trade is settled in the Chinese currency, rather than the US dollar.

To that end, Beijing last month announced a huge expansion of the renminbi cross-border trade settlement scheme, extending it from Hong Kong, Macau and a handful of nations in south-east Asia to companies in all countries, and domestically from five cities to 20 provinces.

Cross-border trade in renminbi totalled Rmb70.6bn in the first half of the year – about 20 times the Rmb3.6bn recorded in the second half of 2009.

Meanwhile, bankers hope that the measures will trigger a feedback loop in which the creation of more renminbi-denominated products in Hong Kong spurs greater cross-border trade settlement, and vice versa.

Yet Beijing has not relinquished all control of the renminbi in Hong Kong. While local banks are allowed to provide renminbi conversion services and loans to whichever companies they please, they can only square their open positions with Bank of China (Hong Kong), the city’s renminbi clearing bank, if the transactions are related to trade.

That means that the growth of the offshore market will be largely constrained, for a while at least, by the amount of trade settlement.

For the market to really take off, China would need to relax more of its controls on cross-border renminbi flows. However, most analysts believe that, after the rush of activity over the past two months, Beijing will for the time being do little more than sit back and wait to see what happens.