PayPal announced in January that it is exploring the launch of its own stablecoin.
So what might PayPal Coin mean for payments and regulation?
In recent years, PayPal has introduced more services around digital currencies, such as buying and selling cryptos. We’ve also seen examples of tech companies exploring stablecoins.
Facebook’s sponsored stablecoin, Libra/Diem, didn’t succeed, with Meta to sell all assets related to Libra/Diem to Silvergate Capital Corporation.
Stablecoins are cryptocurrencies that peg their value to an external asset. While most cryptocurrencies are really volatile in price, stablecoins could bring more stability in price by pegging its value to an asset or using methods to control the stablecoin supply.
The asset which is the collateral behind stablecoin can be a fiat currency, like the US dollar or Euro, a cryptocurrency, like Ethereum, precious metal, real estate or other assets.
There could also be cases when stablecoins are not backed by any asset but instead use methods to control the supply of the stablecoin.
Launching a stablecoin by a tech company, such as PayPal, would have multiple effects on payments and on our lives.
Firstly, and of greatest benefit, it would lower transaction costs and accessibility by a wide number of users.
It would also create fierce competition between tech companies and banks, incentivising banks to put more effort into digital currency developments.
However, stablecoins launched by private companies raise many regulatory questions. For example, there should be proper risk management behind stablecoins to ensure there is enough reserve.
It could also limit the effect of monetary policy if such a stablecoin would be widely used in an economy.