ECB's Schnabel Warns on Dollar-Denominated Stablecoin Risks, Backs Digital Euro

European Central Bank board member Isabel Schnabel has called for robust regulation and the development of the digital euro to address financial stability risks from stablecoins. The global stablecoin market cap has grown to nearly €300 billion, though growth has recently moderated.

The majority of stablecoins in circulation are denominated in US dollars, with Tether's USDT and Circle's USDC accounting for roughly 90% of the total market capitalization. Schnabel warned that dollar-denominated stablecoins risk reinforcing US dollar dominance through network effects, amplifying the international transmission of US monetary policy.

The ECB official identified stablecoin vulnerabilities such as liquidity mismatches and the potential for runs driven by loss of trust in the quality of backing assets. She argued these risks extend to monetary policy transmission and the broader international monetary order, not only to individual users or institutions.