ECB’s Schnabel Says Digital Euro Needed to Counter Stablecoin Risks

A senior European Central Bank official said stronger regulation and a central bank digital currency are needed to address the risks posed by the spread of stablecoins. She also raised concerns that dollar-based stablecoins could further cement the US dollar’s dominance.

The Block reported on June 1 that Isabel Schnabel, a member of the ECB’s Executive Board, made the remarks in a speech at the 2026 Bank of Korea International Conference in Seoul. She said stablecoins could threaten financial stability, monetary policy and the international monetary order.

“Stablecoins are also vulnerable to run risk because of liquidity mismatches and the potential loss of confidence in the quality of backing assets,” Schnabel said. If doubts intensify over the safety of reserve assets, that could trigger large-scale redemption pressure.

She also cautioned against the spread of dollar-denominated stablecoins. “An increase in the use of stablecoins could further entrench the international dominance of the U.S. dollar,” Schnabel said. “Almost all stablecoins currently in circulation are denominated in dollars, while the role of other currencies is negligible.”

Global stablecoin market capitalization has recently risen to about $300 billion, according to The Block’s account of Schnabel’s remarks. Tether’s USDT and Circle’s USDC make up about 90% of the market.

Still, Schnabel stressed that central banks should not block innovation itself. “The right response is not to reject innovation, but to ensure that it develops within a framework that preserves stability, monetary control and trust in money,” she said.

She presented the digital euro as Europe’s answer. As a retail CBDC, it could preserve citizens’ access to public money, reduce reliance on non-European payment providers and strengthen Europe’s strategic autonomy.

Schnabel also said the digital euro could become a pan-European means of payment with legal tender status. It could help reduce fragmentation in Europe’s payments market and should provide safeguards to preserve financial stability, monetary policy transmission and the euro’s international role, she added.

The divergence between US and European policy is also becoming clearer. The Block reported that US Treasury Secretary Scott Bessent said again last week that the current administration would not allow a CBDC. He also urged Congress to pass the Clarity Act.

The digital euro is currently in the technical preparation stage. The ECB is aiming to be ready for a possible initial issuance by 2029 if digital euro legislation is adopted in 2026.

Separately, Coinbase said the European Union’s Markets in Crypto-Assets framework, or MiCA, needs to be strengthened. Katie Harbath, Coinbase’s head of international policy, said MiCA provides a solid foundation, but Europe needs to promote euro stablecoins, clarify access to decentralized finance, maintain global liquidity and strengthen its tokenization strategy to boost the competitiveness of its crypto market.

Harbath also criticized current stablecoin reserve requirements. The existing structure, which requires issuers to hold 30% to 60% of reserves in commercial bank deposits, “concentrates rather than disperses risk,” she said. Increasing the share of high-quality government bonds could reduce systemic vulnerabilities without undermining safety, she added.