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Democratic Congresswoman Maxine Waters (D-CA) took issue with PayPal’s foray into the dollar-pegged stablecoin space on Wednesday, arguing the firm should’ve waited for a regulatory green light at the federal level.
“I am deeply concerned that PayPal has chosen to launch its own stablecoin while there is still no Federal framework for regulation,” she said in a written statement. “Given PayPal’s size and reach, Federal oversight and enforcement of its stablecoin operations is essential.”
The payments giant unveiled its PYUSD stablecoin on Monday, which is issued on Ethereum by Paxos and expected to rival stablecoin incumbents Tether (USDT) and Circle (USDC) in the $125-billion market. Stablecoins are tokens that are pegged to the price of a sovereign currency like the greenback and are often backed by assets like U.S. Treasuries.
While Federal Reserve Chairman Jerome Powell has said the federal government should play a “robust role” in regulating stablecoins, Paxos is primarily regulated by the New York State Department of Financial Services. Waters said in April she was “a little bit surprised” to learn New York had a framework for regulating stablecoins.
On Wednesday, she underscored the need for federal agencies to oversee stablecoin issuers. Lawmakers were initially kicked into action last year after the $40 billion collapse of Terra’s algorithmic stablecoin, UST. But since then, progress has been slow.
“Stablecoins represent the issuance of a new form of money, making it integral that there are federal guardrails,” she said. “As our central bank, the Federal Reserve handles monetary policy and our money supply, and they must be able to do their job.”
Waters' comments follow a blog post from the Fed on Tuesday promising American banks would receive guidance when it comes to issuing stablecoins, touching on record-keeping, know-your-customer (KYC) rules, and the potential irreversibility of transactions.
The Republican-led House Financial Services Committee recently advanced a stablecoin bill, and on Monday, Chairman Patrick McHenry (R-NC) said PayPal’s move signaled it’s time for lawmakers to finish the job.
“It’s more important than ever that Congress enact legislation to provide comprehensive digital asset regulation, especially for stablecoins,” he said in a written statement. “We are currently at a crossroads.”
Waters, who is the ranking Democrat on the Committee, described Republicans’ plans to move forward with a bill that lets stablecoins be issued under state regimes as “toxic and problematic.” In her view, it poses a risk to consumers and would also hamstring the Fed’s ability to exert influence over the economy.
“The Republican bill undermines the Fed's role as our central bank, making it harder to protect the economy against inflation or support maximum employment if stablecoins are broadly adopted,” she said.
In April, Waters said that lawmakers are effectively “starting from scratch” due to Republican alterations to the bill. And on Wednesday, Waters made it clear that her lack of support hasn’t budged.
“As I said during last month’s markup, the Republican bill has no chance of actually being signed into law, and I urge Chair McHenry and Committee Republicans to come back to the negotiation table to craft a bill that actually works,” she said. “The quicker we can get together, the quicker we can ensure that consumers and our financial system are protected.”