PayPal CEO Dan Schulman touted the digital payment pioneer’s new stablecoin program as potentially one of the “most important” moves the San Jose, California-based company will ever make.

PayPal’s decision to launch a stablecoin last month plays into what Schulman sees as the need for an overhaul of the U.S. financial system, he explained during a discussion at a Goldman Sachs investor conference Thursday.

He argued that stablecoins, a type of digital currency typically pegged to a fiat currency, are likely to shape the future of payments, along with government-issued central bank digital currencies.

“I'm a very big believer that the financial system needs to upgrade its infrastructure,” he said at the conference. “And I think that CBDCs, or stablecoins, and probably a combination of the two, will add and maybe redefine a lot of the financial system.”

PayPal is just the latest U.S. financial company to launch its own digital currency. JPMorgan Chase, the biggest U.S. bank, also announced a stablecoin, called JPM Coin, in 2019, and rolled it out the following year. Nonetheless, the bank’s CEO, Jamie Dimon, has maintained that he is not a believer in bitcoin, the biggest cryptocurrency by value.

Scouring for new markets

PayPal is angling to stay on top of forward-thinking digital payments trends as the growth rate of demand for its legacy check-out services slows. Recently, the company’s lower-margin Braintree payments business catering to larger companies has been growing faster. Analysts who follow the company have noted that lopsided growth.

“PayPal (PYPL)’s transaction profit (TP) growth has seen increased pressure recently, primarily due to mix factors such as Braintree (BT)/unbranded volumes (which skew heavily to large merchants and card-funding) growing much faster than branded,” Bank of America Global Research analysts said in a Sept. 8 report.

When the company announced last month that it would create a stablecoin, called PayPal USD, it said it would begin making it available to consumers last month and more widely available over time. It’s pegged to the U.S. dollar, issued by Paxos Trust Company and built on the Ethereum blockchain.

A PayPal spokesperson declined to comment on the amount of the stablecoin outstanding, but pointed to an Ethereum website that tracks outstanding currency market values. The PayPal token has about $44.4 million in market value outstanding, according to that Etherscan website.

“We will likely be able to share more a bit later in the month, closer to when Paxos publishes our first attestation and reserve reports,” PayPal Spokesperson Aaron Gould said in an emailed statement.

The CEO acknowledged the results of the experimental currency won’t emerge immediately. “It may be that five years from now we look back on our stablecoin launch as one of the most important and innovative things that we ever did,” Schulman said.

Schulman's vision for PayPal is limited by the fact that he’s scheduled to leave the company later this month, with Intuit executive Alex Chriss taking the CEO post on Sept. 27.

He noted the importance of the company creating its program in conjunction with regulators and in keeping with smart regulation. He also distinguished stablecoins from cryptocurrencies, many of which have proven to be volatile and some of which have faded away.

Importance of regulation

Indeed, the Federal Reserve is also focused on ensuring proper regulation of the new technology in its monetary system purview. In a speech last week, Michael Barr, the vice chair for supervision of the Fed’s Board of Governors, expressed concern that the Fed doesn’t currently have sufficient supervision of stablecoins. He encouraged Congress to keep working to ensure “there is a robust federal framework for all stablecoins.”

“There are big risks when the Federal Reserve does not have direct supervisory and regulatory authority,” he said in his Sept. 8 written speech to a fintech conference hosted by the Federal Reserve Bank of Philadelphia. “Stablecoins are a form of money, and the ultimate source of credibility in money is the central bank.”

Barr put in perspective the stablecoin stakes for the broader U.S. payments system. “If non-federally regulated stablecoins were to become a widespread means of payment and store of value, they could pose significant risks to financial stability, monetary policy, and the U.S. payments system,” he said in the text of the speech.

A European Central Bank board member suggested this month that stablecoins, including PayPal, could be problematic. ECB board member Fabio Panetta said they may engage in troubling monopolistic behavior. 

“Private providers of payment services, including PayPal, have no incentive to limit the take-up of their stablecoins or the range of services they provide,” Panetta said, according to an American Banker report. “Quite the opposite: their objective is to expand their customer base and gain market share,” he noted. 

In the related world of cryptocurrencies, which are more volatile digital currencies not pegged to fiat, FTX and Binance, two of the largest exchanges for trading cryptocurrencies, have been dogged by regulators over the past year. In November, FTX collapsed, with subsequent revelations about possible misuse of funds. In June, the Securities and Exchange Commission sued Binance over regulatory lapses.

Schulman noted that companies offering digital currencies should be willing to work with regulators, including the Financial Crimes Enforcement Network and Office of Foreign Assets Control, which he said would be expected to “freeze and seize bad actors” when illicit financing schemes are uncovered. 

Furthermore, Schulman advocated that stablecoin operators be “fully transparent,” with having accounting firms reviewing their operations on a monthly and making data public to show whether a stablecoin “truly is stable.”