Maxine Pushes Back on PayPal Stablecoin

On Wednesday, Congresswoman Maxine Waters, a Democrat from California, expressed her disapproval of PayPal’s entry into the stablecoin arena, specifically the dollar-anchored sphere, insisting that the company should have awaited federal regulatory approval.

Waters stated her serious reservations about PayPal’s decision to launch PYUSD stablecoin at a time when there is no existing federal regulatory structure. In a formal declaration, she emphasized that, given PayPal’s magnitude and influence, essential oversight and management of its stablecoin operations at the federal level are crucial.

PayPal made public its PYUSD stablecoin this Monday. Issued on Ethereum by Paxos, it is anticipated to contend with leading stablecoins such as Tether (USDT) and Circle (USDC) in the $125-billion industry. Stablecoins, typically tied to sovereign currencies like the dollar, are often backed by assets, including U.S. Treasuries.

Federal Reserve Chairman Jerome Powell has previously declared the need for the federal government’s “robust role” in stablecoin regulation. However, Paxos falls mainly under the New York State Department of Financial Services’ jurisdiction. Waters revealed her slight surprise in April that New York had already implemented a regulatory framework for stablecoins.

The Democratic Congresswoman reinforced the necessity of federal oversight for stablecoin issuers on Wednesday. The triggering event for legislators was last year’s $40 billion implosion of Terra’s algorithmic stablecoin, UST. But the regulatory response has been gradual.

Waters asserted that stablecoins are equivalent to a novel monetary form, thereby demanding federal safeguards. She added, “As our central bank, the Federal Reserve handles monetary policy and our money supply, and they must be able to do their job.”

Her remarks followed the Federal Reserve’s Tuesday blog post assuring that American banks would receive guidelines on stablecoins, covering areas like record-keeping, KYC procedures, and the possible irrevocability of transactions.

Recently, the Republican-led House Financial Services Committee made progress on a stablecoin bill. On Monday, Chairman Patrick McHenry (R-NC) indicated that PayPal’s initiative demonstrates the urgent need for Congress to finalize regulations.

Waters, the Committee’s ranking Democrat, labeled Republicans’ intentions to proceed with state-regulated stablecoin issuance as “toxic and problematic.” She warned of consumer risks and potential limitations on the Federal Reserve’s economic influence.

She criticized the Republican bill for hindering the Federal Reserve’s central banking function, especially in protecting against inflation or supporting full employment if stablecoins become widely accepted.

In April, Waters mentioned that due to Republican modifications, lawmakers were essentially “starting from scratch” with the bill. On Wednesday, she reiterated her opposition, urging Chairman McHenry and Committee Republicans to return to discussions and draft an effective bill.

She concluded by emphasizing the urgency of collaboration, stating, “The quicker we can get together, the quicker we can ensure that consumers and our financial system are protected.”