Insight & Analysis

PayPal’s stablecoin makes digital currencies mainstream

Published: Sep 2023

The proliferation of cryptocurrencies, stablecoins and central bank digital currencies (CBDCs) in recent years has been treated as an experimentation and an endeavour on the fringes of the financial system. PayPal’s launch of its stablecoin, however, signals a shift in how such technologies are being accepted as the norm.

PayPal's stablecoin logo on mobile device

Digital currencies are no longer a fringe interest; they have now gone mainstream with the launch of PayPal’s stablecoin. The existence of PYUSD shows how far the industry – and regulators – have come in accepting and trusting stablecoins, as well as the other digital currencies being developed around the world.

Unlike Facebook’s attempts to launch a stablecoin – first announced as Libra and then redesigned as Diem – PayPal’s announcement was not met with any panic on the part of regulators. PayPal USD marks a shift in digital currencies becoming mainstream, as well as the progress that has been made in understanding such technologies. Facebook’s project was initially met with widespread panic and condemnation by policymakers who viewed the project as a threat to financial stability and ultimately, Diem’s efforts fell by the wayside.

As a stablecoin, PayPal USD (PYUSD) will be fully backed by US dollar deposits, short-term US treasuries and similar cash equivalents and can be redeemed on a 1:1 basis for US dollars. Announced in August, the stablecoin is geared at web3 environments and will be compatible with the most-widely used exchanges, wallets and web3 apps. PayPal’s President and CEO Dan Schulman said at the time of the announcement, “the shift toward digital currencies requires a stable instrument that is both digitally native and easily connected to fiat currency like the US dollar.”

Users will be able to transfer PayPal USD between PayPal and compatible external wallets; send person-to-person payments; fund purchases with PYUSD; and convert any of PayPal’s supported cryptocurrencies to and from PayPal USD.

The launch comes at a time when there is more mainstream interest in digital currencies. The Bank of England, for example, recently published an article that focused on how a central bank digital currency (CBDC) can promote innovation. Back in February 2023, the central bank had judged it “likely that the digital pound will be needed in the future. It is too early to decide whether to introduce the digital pound, but we are convinced preparatory work is justified.”

Since then, Rachel Greener from the central bank’s Digital Currency Division stated in late August that one of the main motivations for launching the digital pound would be its role in contributing to innovation. “CBDC, as both a new type of money and a new payment system, presents an opportunity to reshape the contours of the financial system. Done well, innovation would be both an input and an output of a UK CBDC. The digital pound would build on innovations in digital banking and payments and create opportunities to serve new payments-use cases,” Greener stated.

Swarup Gupta, Industry Manager at Economist Intelligence, in an interview about digital currencies for a forthcoming Treasury Today Asia article on India’s digital rupee, commented that PayPal’s stablecoin is an exciting development and potentially pathbreaking. When it comes to CBDCs, he notes most of the world is developing a central bank digital currency, but the motivations are different for each country.

The UK discussion around the digital pound is about the development of a CBDC that could be for retail or wholesale, much like many CBDC projects around the world. Of all the projects currently being developed, Gupta believes Saudi Arabia’s Project Aber is one of the most interesting. “It is focused entirely on the wholesale domain and bypasses the need for retail payments altogether,” he told Treasury Today Asia.

This project, he notes, has been more low-key and has been developed primarily for foreign exchange. Project Aber was a collaboration between the central bank of Saudi Arabia and the UAE to explore the viability of a single dual-issued digital currency for domestic and cross-border settlement between the KSA and Emirates as a way of overcoming the existing inefficiencies with cross-border transactions. The results of the pilot showed it was technically viable, a signal the potential of such technologies being used more widely, and – like PayPal’s stablecoin – are becoming more mainstream.

All our content is free, just register below

As we move to a new and improved digital platform all users need to create a new account. This is very simple and should only take a moment.

Already have an account? Sign In

Already a member? Sign In

This website uses cookies and asks for your personal data to enhance your browsing experience.