Hayman Capital Management founder Kyle Bass has been ringing the alarm bells about China's banking system and the yuan for months, and now he says the day of reckoning could be just months away.
The premise of Bass' bet goes like this: China's banking system has grown to $34.5 trillion, equal to more than three times the country's GDP. The country is due for a loss cycle as cracks begin to show in its economy.
When that happens, central bankers will have to dip into China's $3.3 trillion of foreign exchange reserves to recapitalize the banks, causing a significant depreciation in the value of the yuan, according to Bass.
On Wednesday, he said China's export-import industry requires China to maintain $2.7 trillion in foreign exchange reserves to continue operating smoothly, citing an International Monetary Fund assessment.
"They'll hit that number in the next five months," he said in an interview on CNBC's "Squawk on the Street." "Those that think they can burn it to zero and they have many years ahead of them, they really only have a few months ahead of them before they get into a real danger territory."