The ECB is worried that stablecoins will make the euro irrelevant

The European Central Bank just published a speech by Isabel Schnabel, Member of the Executive Board of the ECB and, underneath all the central banker language, is a pretty simple message: stablecoins are starting to look less like a crypto experiment and more like a new form of private money. More importantly, because stablecoins are generally backed by the US dollar, they could make the euro irrelevant.

A key part of her speech is that we have seen all of this before. A hundred years ago, banks created new forms of “private money” beyond physical cash. Later came money market funds, which allowed people and companies to hold cash-like assets outside traditional bank deposits. Now we have stablecoins doing something similar again, except this time on blockchain rails and operating globally in real time.

The core message is that stablecoins can make finance better. They can make payments faster, settlement cheaper and markets more efficient. That part is not controversial anymore and it quite surprised me that even central banks now accept that tokenised finance and programmable money are real developments, not just crypto hype.

But then comes the warning and the ECB’s fear is about scale.

If stablecoins become large enough, people and companies may start moving meaningful amounts of money out of commercial banks into tokenised dollar coins issued by private firms. That changes the plumbing of the financial system as banks will lose deposits, funding structures shift and monetary policy becomes harder to control.

Underlying all of this is the geopolitical angle.

Most major stablecoins today are denominated in US dollars. So, if the world starts using stablecoins for trade, savings and settlement, then the dollar becomes even more dominant globally. No wonder Trump signed off the GENIUS Act, because it might be Genius.

Europe worries that the euro could become irrelevant in digital finance. That is why central banks suddenly care so much about stablecoins. Not because they are “crypto” but because they are becoming infrastructure.

The speech also makes another subtle point.

History shows that any form of money which promises stability can become unstable during a crisis. Money market funds suffered runs during financial shocks. Stablecoins could face the same problem if people suddenly rush to redeem tokens and issuers have to dump huge amounts of government debt or other reserve assets into markets.

So, the ECB’s position is evolving into something more nuanced than “crypto bad”. It is now closer to a position that this technology is real and could reshape money itself, and central banks need to modernise before private digital currencies become too systemically important to ignore.

Worth the time to read the full speech if you have it.