Isabel Schnabel, Executive Board Member of the European Central Bank (ECB), has warned that stablecoins pose risks for both financial stability and monetary sovereignty. Reaffirming the ECB’s long-held stance, Schnabel emphasized that central bank digital currencies (CBDCs) represent the most reliable foundation for Europe’s monetary system.
The core objection to stablecoins
Speaking at an international conference hosted by the Bank of Korea in Seoul, Schnabel drew a parallel between today’s stablecoins and the money market funds that rattled the banking sector in the 1970s. She underscored that both structures redirect bank deposits into alternative investment vehicles, raising concerns about disintermediation within the traditional financial system.
As Schnabel noted, the widespread adoption of stablecoins could further entrench the influence of the US dollar, weakening monetary sovereignty in some economies and disadvantaging other currencies in the process.
According to Schnabel, money market funds historically pulled funds from banks by investing in short-term government securities, commercial paper, and repurchase agreements. Similarly, stablecoins promise one-for-one redemption with fiat currencies, while maintaining reserves composed of government bonds, repos, and bank deposits.
Glossary: MiCA is the European Union’s legislative framework regulating the crypto-asset sector. It sets licensing, reserve, and transparency obligations for issuers and service providers, with especially strict compliance expectations for stablecoins.
Dollar’s dominance in the market
The global stablecoin market has surged to an estimated 320 billion dollars. Tether’s USDT alone accounts for 188 billion dollars of the total, while Circle’s USDC follows at roughly 75.8 billion dollars. In stark contrast, Euro-pegged stablecoins such as Circle’s EURC have a much smaller footprint, with an outstanding supply of about 543 million dollars.
Despite the disparity, euro-denominated stablecoins have gained momentum. In the past year, their supply has expanded by 48 percent, with EURC trading volumes jumping over 1,100 percent following the introduction of MiCA. While the market remains heavily dollar-centric, euro-based products are slowly gaining traction.
Digital euro timeline extends beyond 2027
The ECB sees the digital euro project as a public sector alternative to private-sector stablecoins. However, the digital euro pilot is not expected to launch before the second half of 2027. The initial pilot phase will last for 12 months and involve only a limited group of banks and businesses.
Even if the pilot yields positive results, the ECB projects that the earliest possible rollout for a digital euro would be in 2029. Meanwhile, in a separate move, ten major European banks—including BNP Paribas, ING, and UniCredit—have formed a consortium called Qivalis, aiming to develop a euro-backed stablecoin as part of efforts to create joint digital payment solutions for Europe.
Division within Europe persists
ECB President Christine Lagarde echoed concerns about euro-denominated stablecoins in a speech this May, warning of potential risks to banking sector stability and the effectiveness of monetary policy transmission. The ECB thus maintains a cautious stance not only toward dollar-based stablecoins but also toward privately issued digital currencies more broadly.
Yet, not all European policymakers are on the same page. A Blockchain for Europe report—released in April with contributions from former ECB Director General Ulrich Bindseil—criticized MiCA as too restrictive, arguing that its rules could push stablecoin activity outside of the European Union. Meanwhile, Rebecca Christie, writing for Bruegel, suggested that the EU cannot afford to lag behind on the digital euro, warning that leaving a gap could allow private solutions to fill the void.
