Stablecoin use could cement dollar dominance, ECB's Schnabel warns

European Central Bank (ECB) executive board member Isabel Schnabel told a Bank of Korea conference that rising use of stablecoins could reinforce the US dollar’s global dominance and potentially undermine some countries’ ability to conduct independent monetary policy.

Schnabel noted stablecoins remain relatively small in absolute terms but have expanded rapidly, with the vast majority denominated in US dollars; she argued network effects, scale and first-mover advantages could boost dollar invoicing and liquidity holdings even without stronger underlying fundamentals. Model-based scenarios cited by analysts point to a fast further spread under certain conditions.

Market implications include a potential shift in cross-border payment habits and reserve preferences that could increase demand for dollar-denominated safe assets, with knock-on effects for funding costs and monetary policy transmission in regions where residents adopt dollar-pegged tokens. Central banks and regulators are monitoring tokenised finance for risks to credit intermediation and liquidity.

The comments add momentum to discussions on a digital euro and harmonised regulation: ECB officials have stressed that euro-denominated tokenised assets and coordinated oversight could help preserve the euro’s role in emerging forms of digital finance. At the same time, research and industry reports point to how stablecoin reserve management could re-route demand toward short-term US government securities.

Analysts say outcomes will hinge on regulatory design, issuer practices and central bank responses. If regulatory clarity and robust reserve standards favour US-dollar stablecoins, the dollar’s dominant position could be further entrenched; conversely, a credible digital euro or global coordination on standards could mitigate risks to monetary autonomy. Policymakers will watch adoption patterns, redemption mechanisms and reserve transparency closely.