ECB cautions that stablecoins could affect monetary sovereignty
Growing stablecoin adoption could increase pressure on traditional banks, alter funding structures and affect how central bank policy decisions influence financial markets.
Stablecoins could enable faster payments, lower transaction costs, and more efficient settlement, but may also create risks for financial stability, monetary policy, and monetary sovereignty, according to European Central Bank Executive Board member Isabel Schnabel.
Speaking at the Bank of Korea International Conference on Central Banks and the Future of Money, Schnabel compared the rise of stablecoins with the earlier emergence of money market funds. Both offer alternatives to traditional bank deposits and operate outside the banking system, but stablecoins also function as payment and settlement tools.
Schnabel said stablecoins could contribute to a new wave of bank disintermediation if households and firms replace bank deposits with stablecoin holdings. That could make banks more reliant on wholesale funding and leave their liabilities more concentrated, rate-sensitive, and volatile.
Financial stability risks remain a key concern. Stablecoins can be vulnerable to runs if confidence in their reserve assets weakens, while large-scale redemptions could trigger fire sales or spillovers into sovereign debt and broader fixed-income markets. Schnabel noted that the largest US dollar-pegged stablecoins are now approaching the size of the largest US money market funds.
Stablecoins may also affect monetary policy transmission. Their wider adoption could change bank funding conditions, influence demand for short-term government securities, and create uncertainty over how policy rate changes pass through to financial conditions and the real economy.
Schnabel also warned that stablecoins could further strengthen the US dollar’s international role. Most stablecoins in circulation are dollar-denominated, and wider use could deepen dollar-based payment and settlement networks, particularly in jurisdictions with weaker monetary credibility.
The ECB sees regulation, digital payment infrastructure, and central bank digital currency as part of the response. Schnabel said the Eurosystem’s strategy includes a digital euro for retail payments and tokenised central bank money for wholesale settlement, preserving central bank money as the anchor of trust while supporting private innovation.
Why does it matter?
The speech frames stablecoins as a question of monetary architecture, not only crypto-market innovation. If stablecoins become widely used for payments and settlement, they could shift deposits away from banks, affect monetary policy transmission, create new run risks, and reinforce dollar-based financial networks. For central banks, the policy challenge is to support innovation while ensuring that public money remains the trusted settlement anchor of the financial system.
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