As the market capitalization of stablecoins approaches $300 billion, the European Central Bank has issued a new warning, with bank officials saying a digital euro is needed to protect financial stability and maintain the role of central bank money in payments systems.
According to Isabel Schnabel, a member of the European Central Bank Board, the rapid growth of stablecoins poses risks that could impact financial stability, monetary policy, and the international monetary system.
Speaking at the 2026 Bank of Korea International Conference in Seoul on Monday, Schnabel said stablecoins remain vulnerable to runs if users lose confidence in the underlying assets.
Schnabel told conference participants that stablecoins face liquidity mismatches and could become unstable if confidence in reserve assets declines. He also warned that the sector’s heavy reliance on dollar-denominated tokens could strengthen the US dollar’s position in global finance.
“The growing use of stablecoins could further consolidate the international dominance of the US dollar. Currently, virtually all stablecoins in circulation are denominated in dollars, and the role of other currencies is negligible.” – Isabel Schnabel.
ECB figures cited by Schnabel show that the stablecoin market has grown to nearly $300 billion, albeit at a slower pace than in earlier years. He said Tether’s USDT and Circle’s USDC together account for about 90% of the market.
ECB points to digital euro as policy response
Rather than oppose technological innovation, central banks should maintain confidence in money and establish safeguards to maintain effective monetary management, Schnabel said.
“The appropriate response, therefore, is not to resist innovation, but to ensure that it develops within a framework that maintains stability, monetary control, and monetary confidence.”
Within Europe, Schnabel argued that a digital euro would help preserve citizens’ access to central bank funds while reducing dependence on foreign payment providers. He said a retail central bank digital currency could serve as a pan-European payment option with legal tender status, helping to address fragmentation across the region’s payments market.
Her comments are based on the ECB’s ongoing digital euro project. Back in March, ECB Governing Council member Piero Cipollone told European legislators that the central bank would publish technical standards for a digital euro in 2026, which would allow banks, payment companies and merchants to prepare their systems before the final decision on issuance.
Under the agreement announced in April, the ECB partnered with the European Card Payment Cooperation, NEXO Standard and the Berlin Group to reuse existing European payment standards for digital euro transactions. The ECB said this approach would reduce implementation costs and allow payment providers to integrate digital euro services through their existing infrastructure, rather than building entirely new systems.
Cipollone said a digital euro would not replace cash or bank deposits, but would complement them, and argued that maintaining Europe’s payments infrastructure would preserve regional payments revenues and reduce dependence on international payment networks.
Preparation for release targeting 2029
Although work on the project continues, the ECB’s website states that the digital euro is currently in technical preparation. The central bank expects the digital euro law to be adopted in 2026, followed by a 12-month pilot testing person-to-person and point-of-sale payments in the second half of 2027.
If the legal framework is approved, the ECB has said it wants to be technically ready for a possible issuance by 2029.
Elsewhere, Schnabel contrasted the European approach with that of the United States. Her remarks came days after U.S. Treasury Secretary Scott Bessent reiterated that while the current administration encourages Congress to pursue transparency legislation, it does not support the creation of a U.S. central bank digital currency.
