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The European Central Bank (ECB) has renewed its push for a digital euro, arguing that the rise of stablecoins could reshape the financial system in ways that threaten financial stability, weaken monetary policy transmission, and reinforce the global dominance of the US dollar.
ECB Executive Board Member Isabel Schnabel said at the 2026 Bank of Korea International Conference on Central Banks and the Future of Money, on June 1, that while stablecoins offer technological benefits such as faster payments, programmability, and cross-border efficiency, their growing adoption could create new vulnerabilities for banks and financial markets.
Global stablecoin market capitalization has surged to nearly $300 billion, with US dollar-denominated tokens such as Tether (USDT) and USD Coin (USDC) accounting for around 90% of the market.
By contrast, euro-denominated stablecoins remain a small segment, with a combined market value of roughly €500 million.
Schnabel drew parallels between stablecoins and money market funds, noting that both instruments hold portfolios of short-term assets while promising users redemption at or near par value.
However, she warned that large-scale adoption of stablecoins could accelerate bank disintermediation by encouraging households and businesses to move funds away from traditional bank deposits.
This could leave banks increasingly reliant on wholesale funding sources, making their balance sheets more vulnerable to market stress and liquidity shocks.
The ECB also highlighted the risk of stablecoin runs. Like money market funds during periods of market turmoil, stablecoins could face rapid redemptions if confidence in reserve assets deteriorates.
Such events could trigger fire sales of reserve holdings and create spillover effects across broader financial markets.
Beyond financial stability, the ECB believes stablecoins could alter how monetary policy is transmitted through the economy.
A migration toward stablecoins could change bank funding structures and affect lending conditions, particularly for small and medium-sized businesses that rely heavily on bank financing. At the same time, growing stablecoin reserves invested in government debt could influence short-term interest rates and financial conditions.
The central bank is particularly concerned about the overwhelming dominance of dollar-backed stablecoins. According to Schnabel, wider adoption of these assets could further entrench the US dollar’s position in global finance and increase the international spillover effects of US monetary policy.
For Europe, this could eventually reduce the euro’s relevance in emerging tokenized financial markets and limit the bloc’s monetary autonomy.
In response, the ECB is positioning the digital euro as a critical pillar of Europe’s financial future.
Schnabel said a retail central bank digital currency would help preserve public access to central bank money, reduce Europe’s dependence on non-European payment providers, and support a more integrated payments ecosystem across the euro area.
She emphasized that the ECB’s strategy is not to resist innovation but to ensure that private digital assets develop within a framework that safeguards financial stability and preserves trust in public money.
Alongside the digital euro, the Eurosystem is also advancing wholesale central bank digital currency initiatives, including projects such as Pontes and Appia, designed to support tokenized financial markets while maintaining central bank money as the foundation of settlement infrastructure.
“The introduction of the digital euro is an indispensable step to maintain European sovereignty and foster European integration,” Schnabel said, adding that central banks must adapt to technological change to ensure that private innovations complement rather than displace public money.
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