ECB's Schnabel warns stablecoins pose 3 risks to financial stability

European Central Bank Executive Board member Isabel Schnabel warned that stablecoins could bring money-market fund-style risks — including runs, fire sales and bank disintermediation — into tokenized finance, strengthening the case for a digital euro.

"Private monetary innovation can offer significant benefits, but it also risks importing old financial-market vulnerabilities into new technological environments," Schnabel said Monday at the 2026 Bank of Korea International Conference on Central Banks and the Future of Money in Seoul.

The ECB official compared stablecoins to money market funds, arguing both can create risks around bank disintermediation, runs and monetary policy transmission. She also warned that dollar-pegged stablecoins — which account for virtually all of the roughly $230 billion stablecoin market — could reinforce the US dollar's global dominance. The dollar's share of foreign exchange reserves has fallen to below 57%, down from 70% at the turn of the century, according to IMF data.

"Central banks cannot remain passive observers of these developments," Schnabel said. She argued the Eurosystem's response should focus on modernizing public money through a retail digital euro and tokenized wholesale central bank settlement, rather than promoting euro-denominated stablecoins.

The Dollar Dominance Risk

"Virtually all stablecoins in circulation are denominated in dollars, with other currencies playing a negligible role," Schnabel said. The growing use of dollar-backed tokens could cement the greenback's international role through network effects and first-mover advantages, rather than through stronger economic fundamentals, she added.

For countries with weak monetary policy credibility, the dynamic could become a vicious circle: residents turn to dollar stablecoins, further weakening the local central bank's ability to transmit policy changes to the real economy. Even for regions with strong credibility, persistent dollar stablecoin dominance could limit the euro's role in tokenized finance and the international monetary system over time, Schnabel said.

The Digital Euro as the Answer

The ECB has already laid out its response. In March, the central bank unveiled the Appia roadmap for Europe's tokenized financial markets. A key component, the Pontes DLT settlement bridge, is scheduled to link distributed ledger technology to the Eurosystem's TARGET services in the third quarter of 2026.

The stance puts the ECB at odds with some industry participants. Crypto exchange Coinbase, in a Monday blog post, called for MiCA to recalibrate stablecoin rules on reserves, rewards and multi-issuance to make euro-denominated tokens more competitive. ECB President Christine Lagarde said on May 8 that stablecoins are not Europe's best route to strengthening the euro's international role.

The European Commission is reviewing MiCA with a public consultation open until Aug. 31, examining whether the bloc's crypto rules should be updated. The ECB warned EU finance ministers on May 23 that loosening stablecoin rules could weaken bank lending and complicate monetary policy.

"The proper response is not to resist innovation but to ensure it develops within a framework that preserves stability, monetary control and trust in the currency," Schnabel said.

This article is for informational purposes only and does not constitute investment advice.