Reserves have plunged from $4 trillion in June 2014 to $3.2 trillion as of February. Much of it is illiquid and cannot be used to stabilize the currency. So the IIF said that capital flight could accelerate if Chinese investors fret that the yuan could fall in a "disorderly" manner.

This would have broader ramifications:

A sharp drop in the renminbi would likely spark a renewed sell-off of global risk assets and trigger a flight of portfolio capital from emerging markets.

Moreover, a sharp depreciation of the renminbi could lead to a round of competitive devaluation in other emerging markets, particularly in those with close trade linkages to China.