ECB's Isabel Schnabel Warns Stablecoins Could Recreate Money-Market Fund Risks

European Central Bank Executive Board member Isabel Schnabel used a major central-bank conference speech on Sunday to warn that stablecoins can generate some of the same vulnerabilities long associated with money-market funds, arguing that central banks need tighter regulation, market infrastructure adapted for tokenised finance and access to a public settlement asset to keep the system anchored.

The remarks, delivered in Seoul on June 1 at the Bank of Korea’s International Conference on Central Banks and the Future of Money, offer a fresh signal of how a top ECB policymaker is thinking about stablecoins, tokenisation and financial-market structure. The ECB published the full speech and an 18-page slide deck the same day. While the speech was not a formal policy decision, comments from an ECB Executive Board member are closely watched for clues about the institution’s broader thinking.

“In my remarks today, I will examine the parallels and differences between the emergence of money market funds and that of stablecoins to provide a perspective on the challenges posed by stablecoins and other forms of tokenisation for today’s financial system,” Schnabel said.

Her central message was that private forms of digital money may improve speed and convenience, but they can also create new points of strain for the financial system. “I will argue that private monetary innovation can offer significant benefits. But I will also show that it can heighten financial stability risks, affect monetary policy transmission and alter the international monetary order,” she said.

Schnabel explicitly compared today’s fiat-pegged stablecoins with the rise of money-market funds, or MMFs, which grew rapidly from the 1970s as investors sought cash-like products outside traditional bank deposits. The comparison matters because MMFs were long treated as safe cash substitutes until stress exposed their fragility.

ECB slides accompanying the speech showed how concentrated and dollar-heavy the stablecoin market remains. Global stablecoin market capitalization was close to $300 billion as of May 2026, the slides said, with Tether’s USDT and Circle’s USD Coin accounting for roughly 90% of the total. By contrast, euro-denominated stablecoins amounted to about 500 million euros, underscoring how small that market remains. The same slides said about 85% of transaction volume on crypto trading platforms involves exchanges between stablecoins and other crypto-assets, suggesting trading, not everyday payments, is still the dominant use.

Schnabel also argued that reserve quality is central to the risk profile of a stablecoin. ECB slides contrasted USDT, described as holding part of its reserves in relatively less liquid and riskier assets including commodities, loans and crypto-assets, with USDC, described as being backed mainly by sovereign bonds and repurchase agreements, or short-term secured funding transactions.

In Europe, she pointed to the bloc’s Markets in Crypto-Assets regulation, or MiCAR, which already imposes specific requirements on stablecoin issuers. Under those rules, euro-area issuers must hold a high share of reserves as bank deposits: at least 30%, rising to 60% for issuers classified as significant. That framework helps explain why Schnabel framed the response as stricter safeguards and stronger plumbing, rather than a rejection of the technology itself.

She said central banks also need to provide the infrastructure for tokenised finance to settle safely in central-bank money. Schnabel highlighted two Eurosystem projects: Pontes, a short-term track linking distributed-ledger platforms to the TARGET payment system, and Appia, a longer-term roadmap for a tokenised wholesale ecosystem.

The historical analogy was central to her warning. Money-market funds expanded in the United States in part because Regulation Q capped the interest banks could pay on deposits. But in 2008, the Reserve Primary Fund “broke the buck” after the collapse of Lehman Brothers, triggering redemptions and demonstrating how quickly a run can hit an instrument marketed as cash-like.

For Schnabel, that episode is a reminder that innovation does not remove old financial risks. “While stablecoins promise efficiency improvements in the payment and settlement domain, much of these improvements derive from the underlying technology, not from the instrument itself,” she said.