Dollar-backed stablecoins risk reinforcing US monetary dominance by building new global payment and funding networks outside traditional financial infrastructure, according to European Central Bank Executive Board member Isabel Schnabel.
Dollar Dominance Grows as Stablecoins Surge, ECB Warns
1 June 2026 - 15:58 CEST
By Sandmark staff
With global stablecoin market capitalisation now approaching $300bn and dollar-denominated assets continuing to dominate, Schnabel warned at the 2026 Bank of Korea International Conference in Seoul that this growth could reshape the international monetary system. Stablecoins are cryptocurrencies designed to maintain a stable value, usually pegged one-to-one to the US dollar. She said their expansion may strengthen the global role of the dollar and amplify the cross-border transmission of US Federal Reserve policy.
Stablecoins, monetary sovereignty
Stablecoins have expanded quickly over the past year. Despite growing international use, the sector remains overwhelmingly dollar-based. The two largest issuers, Tether (USDT) and Circle’s USDC, account for the vast majority of supply. Euro-denominated stablecoins have so far played only a marginal role, with a combined market capitalisation of approximately EUR 500 million.
"The dollar’s dominance would be reinforced, not necessarily owing to stronger economic fundamentals but due to network effects, scale and first-mover advantages," Schnabel said.
This concentration carries significant implications. The expansion of dollar-denominated stablecoins could create new cross-border financial networks that reinforce the international role of the US currency. In economies with weaker monetary credibility, users may turn to dollar-backed stablecoins for everyday transactions and savings. This shift risks accelerating currency substitution and reducing the effectiveness of domestic monetary policy tools.
Schnabel drew parallels with the historical rise of money market funds in the 1970s and 1980s. Private monetary innovations can reshape financial systems far beyond their original intent. While stablecoins can improve payment efficiency and reduce settlement frictions, they may also increase dependence on wholesale funding markets, encourage deposit migration from traditional banks, and open new channels for financial contagion during periods of market stress.
Public infrastructure over private money
Rather than embracing stablecoins as a primary policy response, Schnabel urged Europe to strengthen public monetary infrastructure. Many advantages of stablecoins stem from the underlying blockchain technology rather than the private instruments themselves.
The ECB’s strategy therefore centres on preserving the role of public money. This includes development of the digital euro, a planned central bank digital currency (CBDC) intended to serve as a retail form of public money in the digital economy and reduce reliance on non-European payment providers while maintaining user privacy and financial stability.
Alongside this, the Eurosystem is advancing wholesale tokenization initiatives. Projects such as Pontes and Appia focus on distributed-ledger technology for financial markets, using central-bank money as the settlement asset. Schnabel questioned whether stablecoins would ultimately dominate tokenized money, suggesting tokenized bank deposits may prove more sustainable long-term.
As Europe pushes forward with its digital euro and tokenization projects, the remarks signal a clear policy direction. European authorities are likely to prioritise public-led solutions in upcoming crypto regulations to counter dollar-centric private stablecoins and safeguard monetary sovereignty in the evolving digital finance landscape.
