I think this post explains everything.This is a good starting point to talk about.
It's bullshit that in order for yuan to become reserve currency, China will have to give up capital controls. The so called experts who advocate this usually have no idea what they're talking about or is trying to willfully mislead.
U.S dollar is the world's number one reserved currency. Yet, does America lack control of its own currency and exchange rate? Of course not! If the U.S had "given up capital control," they wouldn't be able to sanction anyone; they wouldn't be able to implement unlimited quantitative easing; or have such astronomical debt rate. Financial sovereignty is perhaps the most important right of a nation, and lack of it will contribute little to the yuan becoming a reserve currency.
How did America achieve and maintain reserve currency status? Two main reasons:
Therefore, for a currency to become a reserve currency, it just needs to be widely accepted and used around the world. China is in a unique position to achieve this because China is the largest trading nation in the world. All China needs to do is make it law that from now on, all trade transactions with a Chinese institution must be denominated and completed in Yuan. In other words, you want to buy Chinese goods? Pay in Yuan.
- War. After World War II, America gave Europe massive loans to rebuild the continent. This was the basis for the dollar becoming widely accepted. Today, America continues to enforce dollar hegemony through war as seen in Iraq and Libya (Saddam Hussein wanted to trade Iraqi oil in Euro; while Gadafi wanted to trade Libyan oil in gold).
- Ease of use of the Swift banking system. U.S Swift system further consolidates the dollar's acceptance and all banks today use it to handle transactions. There is currently no real alternative and America wants to keep it that way.
However, such a law will cause serious problems. First, it's not in China's style or interest to do this. For China, as the biggest advocate for multilateralism, making such a unilateral declaration will seriously harm China's image and damage international trust. Therefore, China must continue on the path of multilateral win-win co-operation and consensus building; China should not strive to become like America.
Secondly, America will surely react negatively as it did with Iraq and Libya. We can already see signs of the U.S manufacturing consent for a war with China, and China hasn't even done anything yet! For Iraq the story was Saddam had weapons of mass destruction and must be stopped, and we all know today that there was no WMD in Iraq. For Libya the story was Gadafi used chemical weapons on his own people; Nato intervened in Libya in 2011 and yet by 2016 they were still looking for chemical weapons "hidden in bases with which nobody was familiar, deep in the desert." I think in another 10 years we will find out that this is just another example of atrocity propaganda just like the Nayirah testimony. For China, the story is concentration camp in Xingjiang, forced slave labor, and forced abortion. Therefore, to achieve reserve currency status, China must also continue to modernize its military such that there is sufficient deterrence for an American invasion.
Thirdly, there is still no viable alternative to Swift banking. Currently yuan accounts for only about 2% of the world's currency exchange. Which means even if China mandates the use of Yuan, no one in the world has it and there's no way for China to easily distribute the Yuan around the world. Therefore, China's strategy will involve developing better alternatives to Swift banking. And this is where the digital blockchain Yuan comes in. Once developed, this will enable Chinese banks to give out loans directly to you or I on our phones. There would be no need to establish global banking branches, and transactions are safer and faster.
In conclusion, from this one aspect of attaining global reserve currency, China's future will be predominately about building multilateralism and win-win cooperation, increased military development, and financial sector reform within China with focus on digital currency. All these development will take time and I expect this to be the trend for the next 20-30 years.
I just want to add, broadly saying that USD is reserve currency because of so called "free flow" is totally bogus. People sometimes are too lazy to change to another system.
But with only payment booming,digital yuan will courage countries to make it reserve currency, especially if china can team up with countries like Iran to sell energy in yuan.