Schnabel: Stablecoins risk banking runs, urges digital euro

Isabel Schnabel, a member of the European Central Bank Executive Board, warned Monday at the 2026 Bank of Korea International Conference in Seoul that stablecoins could import traditional financial-market risks into tokenized finance and weaken monetary control.

She compared stablecoins to money market funds, saying they can bring useful innovation while also exposing the system to familiar vulnerabilities. Schnabel listed runs on providers, reduced bank lending, forced asset sales and impaired monetary policy transmission as risks that tokenized private money could amplify.

Schnabel noted most stablecoins are denominated in U.S. dollars and cautioned that wide adoption could strengthen the dollar’s global role. “The growing use of stablecoins may further cement the international dominance of the U.S. dollar,” she said, adding that private forms of money, once widely used, can reshape the financial system in ways that are hard to reverse.

To respond, the Eurosystem plans a two-part approach: a retail digital euro for public use and tokenized wholesale central bank money to support market infrastructure. “Central banks cannot remain passive observers of these developments,” Schnabel said, arguing for frameworks that preserve stability, monetary control and trust in the currency.

The remarks follow the ECB’s Appia roadmap published in March, which includes Pontes, a distributed ledger technology bridge linking tokenized settlement to the Eurosystem’s TARGET services. Pontes is scheduled to launch in the third quarter of 2026. ECB President Christine Lagarde has urged focusing on tokenized settlement infrastructure anchored by central bank money rather than promoting euro-denominated private stablecoins.

The debate is unfolding alongside a review of the European Union’s Markets in Crypto-Assets Regulation, with a public consultation open until Aug. 31. Crypto firms have sought changes to reserve rules and incentives to make euro-denominated stablecoins more competitive, including allowing reserves in high-quality sovereign assets and permitting non-interest rewards such as cashback or loyalty points.

European regulators have cautioned against loosening rules. On May 23 the ECB told EU finance ministers that easing stablecoin regulation could weaken bank lending and complicate monetary policy. The Eurosystem’s work on a digital euro and tokenized settlement aims to provide public alternatives that connect with existing payment and settlement systems.