ECB's Schnabel Urges Digital Euro to Counter Stablecoin Risks

• ECB’s Schnabel backs a digital euro as dollar-backed stablecoins gain influence.
• Global stablecoin market is nearing $300 billion, with USDT and USDC having a 90% share.
• ECB warns stablecoins could weaken bank funding and trigger reserve-run risks.

The European Central Bank (ECB) is warning once again about the fast rise of dollar‑pegged stablecoins. ECB board member Isabel Schnabel says a digital euro is becoming more and more critical to protect Europe’s control over its own money and keep its financial system stable.

Schnabel’s comments come from a speech at the Bank of Korea International Conference in Seoul on June 1.

She admits that stablecoins can bring benefits like faster payments, lower fees, programmability, and more efficient settlement. However, their rising use also poses a notable risk to financial stability. The ECB’s board member also stated that with stablecoins, there are risks in how central banks manage policy and the overall global monetary system.

One of Schnabel’s biggest concerns is the dominance of dollar-backed stablecoins.

Currently, the global stablecoin market is nearing $300 billion, with Tether (USDT) and USD Coin (USDC) accounting for about 90% of it. In contrast, euro‑backed stablecoins are still tiny, with a total market cap estimated at around €500 million.

Schnabel says that the imbalance could boost the dollar’s global dominance, especially as finance moves on‑chain. She warned that if dollar‑backed stablecoins become the norm, it could shrink the euro’s international role and make the world more dependent on US‑centric financial systems.

Instead of trying to stop innovation, Schnabel notes that central banks should modernize public finance infrastructure with CBDCs (Central bank digital currency) and tokenized central bank money.

The ECB sees the digital euro as a tool to keep public access to sovereign money and cut Europe’s dependence on foreign payment systems and private stablecoin companies.

During her speech, Schnabel compared stablecoins to money market funds, saying both create similar risks. If consumers pull funds from bank deposits into stablecoins, banks could end up with a thinner, more volatile funding base. The ECB also warned that stablecoins themselves could face runs if trust in their reserves falls.

Additionally, one reason the ECB is taking the issue seriously is scale. Schnabel pointed out that some of the largest dollar stablecoins are now as big as major money market funds. Regulators worry that a rush to cash out could trigger forced selling of reserves and possibly spark wider market chaos.

Related: ECB Rejects Proposals to Boost Euro Stablecoins, Says It’s Too Risky