Lessons from money market funds and stablecoins for central banks

Isabel Schnabel, Member of the Executive Board of the ECB, delivered a speech at the 2026 Bank of Korea International Conference on Central Banks and the Future of Money. She highlighted the evolving nature of money, emphasizing how financial innovations like stablecoins and money market funds impact the financial system.

Historically, innovations such as bank money and money market funds have improved efficiency and access, but also introduced new risks. Stablecoins, which are privately issued digital tokens pegged to fiat currencies, share similarities with money market funds but differ in remuneration and use cases.

Stablecoins are primarily used for payments and settlement, with a market capitalization nearing USD 300 billion. They pose risks including potential runs, disintermediation of banks, and impacts on financial stability and monetary policy transmission. Their reserve backing varies, with recent events highlighting vulnerabilities.

The rise of stablecoins could reinforce the dominance of the US dollar globally, affecting monetary sovereignty and policy independence in other regions. Central banks must adapt regulation, monetary policy frameworks, and payment infrastructure to mitigate risks.

The ECB’s strategy involves digital euro initiatives, including retail and wholesale central bank digital currencies (CBDC), to preserve trust, enhance strategic autonomy, and foster innovation. Projects like Pontes and Appia aim to enable secure, tokenized transactions and support a future-proof financial ecosystem.

In conclusion, while technological innovation offers benefits, central banks should establish appropriate guardrails to ensure financial stability, effective monetary policy transmission, and the international role of the euro are maintained in the digital age.