ECB board member warns stablecoins risk dollar dominance

A senior European Central Bank official has warned that the rapid growth of stablecoins poses significant risks to financial stability and could reinforce the global dominance of the U.S. dollar, potentially undermining monetary sovereignty in Europe and elsewhere. Isabel Schnabel, a member of the ECB's Executive Board, delivered the remarks at the Bank of Korea International Conference in Seoul.

Schnabel argued that stablecoins, which are cryptocurrencies pegged to assets like traditional currencies, share structural similarities with money market funds and introduce vulnerabilities including the risk of bank disintermediation, runs, and fire sales. She stated that these private digital currencies could weaken the transmission of monetary policy if they are widely adopted, as households and businesses might hold stablecoins instead of bank deposits, diluting the impact of central bank interest rate decisions.

A primary concern highlighted is the overwhelming dominance of U.S. dollar-pegged stablecoins, which Schnabel said account for virtually the entire market. She warned that their growth could cement the dollar's international role not due to economic fundamentals, but...