If you have to do that, it doesn't seem particularly advantageous over existing methods. You're meeting in person, exchanging cash illicitly, etc. If someone is willing to do that, why not just buy USD in a foreign bank account directly? (That's my understanding of the current system; people with clean histories open accounts with varying amounts of money in USD / EUR / JPY jurisdictions, then transfer control of those accounts to someone else, for a small profit margin, who then transfers them again, in exchange for cash at a significant margin, in, say, China.)

Either way, someone ends up with cash CNY and the other person ends up with electronic USD or EUR or whatever.

The immediate limiting factor is the vulnerability of any in-person transaction to traditional law enforcement mechanisms, and the eventual limiting factor is that the exchange rate is going to be impacted by the demand for cash CNY. Eventually nobody is going to want to sell you USD (or whatever) for your cash-in-a-bag CNY, or will only do it at exorbitant rates.