Thursday, August 10, 2023
PayPal USD will be backed 100 percent by U.S. dollar deposits, short-term U.S. Treasury securities and "similar cash equivalents," according to an Aug. 7, 2023, statement from PayPal. PayPal customers already have the ability to buy, sell and transfer select cryptocurrencies using their PayPal wallets. They can even pay with crypto. In the coming weeks, PayPal said, customers will be able to purchase PayPal USD, as well as:
"The shift toward digital currencies requires a stable instrument that is both digitally native and easily connected to fiat currency like the U.S. Dollar," said Dan Schulman, PayPal's president and CEO.
Stablecoins are crypto tokens whose monetary value is pegged to a stable asset, commonly the U.S. dollar. But they are not really "money" that can be spent; they need to be converted to U.S. dollars before any exchange occurs between buyers and sellers.
Big tech companies and banks have been eager to engage in cryptocurrency activities, but U.S. regulators continue to look askance at such initiatives.
Back in 2019 when Meta was Facebook it had to ditch a planned stablecoin, Libra, after regulators balked. Then, just days after PayPal disclosed plans for PayPal USD, the Federal Reserve issued a supervisory letter informing state banks that are members of the Fed system (pretty much all state-chartered banks) that they need the Fed's permission to get involved in stablecoins, according to reporting by Reuters. Specifically, they need a "supervisory nonobjection" letter, the central bank said in a letter to banks and the Fed's examiners.
The Fed also said it is creating a new supervisory program to oversee the activities of banks it supervises that are related to cryptocurrencies, blockchain technology and tech-driven nonbank partnerships, Reuters reported.
Meanwhile, PayPal's banking partner, Paxos, is being investigated by both the Securities and Exchange Commission and the New York Department of Financial Services, its' primary regulator, over its relationship with the crypto exchange Binance. Binance made headlines earlier this year when regulators accused the company operating as an unregistered securities exchange.
Legislation pending in Congress aims to clarify how crypto assets should be regulated. The Clarity for Payment Stablecoins Act of 2023, approved in late July by the House Financial Services Committee, would specify, for example, that stablecoins are not securities. Written by Representative Patrick McHenry, R-N.C., the bill also calls for bank-like regulation of nonbank issuers of stablecoins, with state regulators designated as first-tier supervisors and the Fed as a backup enforcement authority for "exigent" circumstances.
It is unclear how the legislation, which is an amalgam of fives bills related to stablecoins, will fare going forward. The vote by the committee, which is chaired by Rep. McHenry, was basically along party lines.
PayPal, in its statement announcing PayPal USD, positioned the new product as something of an educational project for the public and lawmakers. "PayPal is focused on increasing consumer and merchant comprehension of cryptocurrencies, stablecoins and central bank digital currencies (CBDCs), while working closely with regulators as the industry evolves," the company stated. 
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