China is expanding into digital currencies, hoping to promote use of its 'people's money'

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Chinese financial markets and limits on convertibility of the yuan, or “people’s money,” are big obstacles blocking its global use.Still, Hong Kong already has stablecoin regulations and some Chinese experts are pushing for regulations to prepare for a possible stablecoin pegged to the yuan.Officials at the People's Bank of China and State Council Information Office in Beijing did not immediately respond to requests for comment on a Reuters report that the State Council, or Cabinet, is preparing to issue a plan for internationalizing the yuan that might include a yuan stablecoin.In the U.S., President Donald Trump has made cryptofriendly policies a priority for his administration. He signed a law, the GENIUS Act, last month regulating stablecoins.How stablecoins workStablecoins are digital currencies whose value is linked to a specific currency such as the U.S. dollar. They can be used as a substitute in situations where currency transactions might be difficult or costly. They are different from cryptocurrencies like Bitcoin in that their only purpose is to be a means of payment, not an investment meant to be traded to gain value.Dollar stablecoins are typically bought and sold for $1 each. They are based on a reserve equal to their value, but are issued by private institutions, not central banks like the U.S. Federal Reserve.Stablecoins are not Digital Central Bank Currencies, which are digital versions of currencies issued by central banks. They are based on blockchain-based distributed ledgers. They are “stable” in the sense that their value is anchored to the currency they are based on.Critics of stablecoins say that since they are essentially a proxy for ordinary currencies that can bypass banking systems and safeguards set up to manage traditional financial transactions they may be most useful for illegal purposes.China inches toward using digital currenciesChina launched its own digital yuan, the e-CNY issued by its central bank, on a trial basis in 2019, and McDonalds was an early participant in that project. Chinese regulators have banned mining, trading and other dealings in private, decentralized digital currencies like Bitcoin, while encouraging use of the digital yuan.The nearly universal use of electronic payments has facilitated use of the e-CNY in the Chinese mainland, with some cities using it to pay wages of civil servants. 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