China’s yuan has ‘Long March’ to reserve-currency status

China’s latest progress on getting the yuan accepted as a reserve currency has focused attention on the big payoff: that eventually investors and central banks will load up on trillions of yuan-denominated equities and bonds.

The Goldilocks scenario sees a fresh fund infusion driving Shanghai’s soaring equity markets even higher and delivering a much needed capital boost to China’s debt-burdened industry. But it could also turn into a bad dream. Some analysts warn that if the opening of the capital account is mishandled, it risks triggering a systematic financial crisis.

Last week, China moved another step closer to the currency big leagues after receiving the blessing of the Group of Seven finance ministers to be included in the International Monetary Fund’s (IMF) benchmark currency basket. German Finance Minister Wolfgang Schaeuble said there was agreement the yuan USDCNY, +0.0016% USDCNH, -0.0145%  should be part of the IMF’s basket of international currencies, once technical and other issues are sorted out.

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