ECB Warns Stablecoins Could Pressure Banks and Strengthen Dollar Dominance

Highlights:

• ECB’s Isabel Schnabel warned on Monday that stablecoins could put pressure on banks if deposits shift into digital tokens.
• She said stablecoin runs could force reserve asset sales and affect broader financial markets.
• Schnabel warned that dollar-backed stablecoins could strengthen U.S. currency influence in global finance.

The European Central Bank (ECB) has warned that stablecoins could bring useful payment innovation but may also create new risks for banks, financial stability, monetary policy, and the global role of currencies. ECB Executive Board member Isabel Schnabel made the comments during a speech at the Bank of Korea International Conference on Central Banks and the Future of Money in Seoul on Monday.

Schnabel said the nature of money has always changed with financial innovation. However, she added that when new forms of money become large in scale, they can affect the structure of the financial system. In her speech, she compared stablecoins with money market funds, which became important financial tools over the past 50 years.

The ECB official said stablecoins share some features with money market funds. Both are backed by short-term assets, aim to keep a stable value, and operate outside the traditional banking system. However, stablecoins are primarily used for payments and settlement, whereas money market funds are primarily used to earn yield.

According to the speech, the global stablecoin market capitalization is now close to $300 billion. Tether and USD Coin, the two largest U.S. dollar stablecoins, make up about 90% of the total market. In contrast, euro-denominated stablecoins remain very small, with a combined market value of about €500 million.

Schnabel said stablecoins are attractive because they can offer near-instant settlement, global access, programmability, and cheaper cross-border payments. So far, their main use remains crypto trading. The ECB said around 85% of transaction volume on crypto trading platforms involves exchanges between stablecoins and other crypto-assets.

Stablecoins offer benefits but also pose risks to financial stability, monetary policy and the international monetary order, says @Isabel_Schnabel. Central banks must keep pace with innovation to preserve the anchoring role of central bank money in future.… pic.twitter.com/aehGcv86XS

— European Central Bank (@ecb) June 1, 2026

ECB Warns Stablecoins Could Put Pressure on Banks

The ECB said stablecoins could create pressure on banks if people and companies move deposits into digital tokens. Banks may then rely more on wholesale funding, which can be less stable and more expensive. That shift could make banks more vulnerable during stress. Schnabel also warned that stablecoins could face runs if users lose trust in the assets backing them.

She said the impact of any run would depend on the quality and liquidity of a stablecoin’s reserves. The speech noted that Tether holds parts of its reserves in assets such as commodities, loans, and crypto-assets. It also said USD Coin is mainly backed by sovereign bonds and repos, which could create spillover risks if large redemptions forced asset sales.

The ECB also noted past pressure on USD Coin’s peg after part of its reserves were held at Silicon Valley Bank. The event raised concerns about the quality and availability of stablecoin reserves.

Dollar Stablecoins Raise Concerns for Europe

Schnabel said stablecoins could also affect the international monetary system. Today, most stablecoins are issued in U.S. dollars, while other currencies play only a small role. The ECB warned that wider use of dollar stablecoins could strengthen the dollar’s role in global finance.

For Europe, this could limit the euro’s role in tokenized finance over time. Schnabel said central banks should not resist innovation, but they must make sure it develops under rules that protect stability, monetary control, and trust.

The ECB said regulation should focus on reserve quality, liquidity, transparency, valuation, and redemption safeguards. It also said central banks need to improve payment infrastructure. For the Eurosystem, this includes work on the digital euro for retail payments and tokenized central bank money for wholesale settlement.

Schnabel stated that stablecoins could have their place in the financial system, similar to how money market funds had been established many years before. Nevertheless, Schnabel argued that mere innovation is not sufficient. Instead, appropriate guardrails are necessary to safeguard financial stability, monetary policy transmission, and the role of the euro globally.