Key Points:
- Bank of America sees potential in stablecoins, noting PYUSD’s gradual efficiency benefits.
- PYUSD’s adoption may face challenges from CBDCs and interest-yielding stablecoins.
- Fednow’s innovative solution to domestic payment inefficiencies and its prospects in a digital asset landscape.
In an assessment conducted by Bank of America, an analysis has been presented regarding Paypal’s U.S. dollar stablecoin and the Fednow payments platform. The bank does not anticipate immediate widespread adoption of PYUSD, citing that the introduction of Paypal’s stablecoin won’t immediately lead to “accelerated regulatory clarity.” Nevertheless, Bank of America believes that stablecoins possess the potential to offer a more efficient payment solution.
Bank of America’s Take on Paypal’s US Dollar Stablecoin
Recently, Bank of America released a comprehensive report within its Global Digital Asset Strategy, offering insights into Paypal’s U.S. dollar stablecoin and the Fednow payments mechanism. The report was jointly authored by Alkesh Shah, the head of global crypto and digital assets strategy at Bank of America Global Research, and Andrew Moss, the bank’s global digital asset strategist.
Paypal (Nasdaq: PYPL) is set to unveil a U.S. dollar-based stablecoin, named Paypal USD (PYUSD), targeted at U.S.-based Paypal users. The stablecoin, according to the payment behemoth, will be compatible with select third-party digital asset wallets and will be backed by conventional assets such as the U.S. dollar, short-term Treasuries, and cash equivalents.
Pointing out that Paypal, boasting 435 million users, stands as the first global entity to introduce a stablecoin with regulatory approval, Bank of America stated:
“We anticipate that the launch of PYPL’s PYUSD will gradually enhance payment efficiencies and enrich the customer experience. However, immediate adoption of PYUSD is unlikely to be substantial due to factors like limited wallet compatibility, exchange trading pairs, and novel functionality.”
“Over the longer horizon, we envision that PYUSD could encounter increased adoption challenges as competition from central bank digital currencies (CBDCs) and interest-yielding stablecoins gains momentum,” Bank of America further elucidated. “Investors may have accepted non-interest-bearing stablecoins, like USDT and USDC, during periods of near-zero interest rates, but the appeal of interest-yielding stablecoins will likely rise, especially when short-term rates surpass 5%.”
Addressing cryptocurrency regulations, Bank of America emphasized:
“We don’t anticipate the introduction of PYUSD to expedite regulatory clarity, as the issuance of this stablecoin doesn’t significantly alter systemic risk in traditional markets. However, regulatory obstacles might arise for the stablecoin if non-banks are eventually prohibited from issuing stablecoins.”
Bank of America’s Analysis of Fednow
The Bank of America’s report also encompasses an examination of the Fednow service, which went live on July 20, aiming to “facilitate real-time transfers of customer funds between financial institutions, predominantly banks and credit unions,” as defined by the bank. Shah and Moss expounded:
“We perceive Fednow as a necessary and inventive response to an issue—inefficient domestic payments and transfers—that other nations have already tackled.”
The analysts clarified that Fednow’s infrastructure does not rely on blockchain technology, asserting: “Instead of utilizing blockchain, Fednow employs traditional payment channels to establish an interbank settlement network.”
They stressed: “As the digital asset ecosystem evolves, we envision the potential for stablecoins and eventually CBDCs to offer an even superior solution, especially for swifter and more cost-effective cross-border payments and transfers—capabilities that Fednow does not encompass. It’s noteworthy that the efficiencies unlocked by Fednow might not be fully harnessed without the adoption of financial institutions, resulting in network effects, alongside the development of end-user interfaces and applications.
