A senior European Central Bank official has warned that stablecoins carry the same fragilities that once destabilized money market funds, cautioning that their rapid rise could threaten financial stability and quietly entrench the US dollar at the euro’s expense.
The remarks come as the nascent stablecoin sector pushes deeper into mainstream finance, forcing central banks to confront a form of private money that now operates at meaningful scale outside the traditional banking system.
Schnabel drew a direct line between today’s stablecoins and the money market funds that emerged in the 1970s. Both invest in short-term safe assets, both promise redemption at or near par, and both sit outside conventional banking, according to the ECB. That resemblance is the problem: both can suffer runs and fire sales, as money market funds did in 2008 when the Reserve Primary Fund fell below par and froze short-term funding markets.
She placed the global stablecoin market near $300 billion, with Tether and USDC accounting for roughly 90% of it, per the ECB. Euro-denominated tokens remain marginal at around €500 million combined, while close to 85% of stablecoin transaction volume still sits inside crypto trading.
Why Europe Sees A Strategic ThreatUnder the EU’s MiCAR framework, European stablecoins must hold at least 30% of reserves as bank deposits, rising to 60% for significant issuers — rules Schnabel said improve reserve liquidity but cut into issuer profitability, the ECB noted. Her larger concern is strategic: with nearly all stablecoins denominated in dollars, their growth could deepen dollar dominance and erode the euro’s standing in tokenized finance.
This dynamic, she signaled, marks a pivotal moment for the euro’s role in the digital age. The ECB’s answer is to advance the digital euro and a wholesale CBDC through projects named Pontes and Appia.
Schnabel’s message was not a call to block stablecoins but to set guardrails and offer a public alternative — a signal that the Eurosystem intends to compete on technology rather than regulate from the sidelines. For builders watching Europe, the warning underscores how quickly the regulatory and competitive ground is shifting beneath an industry still defining itself.
Cover image from Grok, ETHUSD chart from Tradingview
