ECB's Schnabel: Put euro on blockchain, stablecoins can't replace central bank money

The European Central Bank (ECB) intends to issue euros directly on a blockchain. Executive Board member Isabel Schnabel, speaking at the Jackson Hole symposium on Friday, laid out that vision and did not mince words on stablecoins.

Schnabel was referring to wholesale central bank money used for interbank settlement, not retail euros. Tokenized markets, in her view, require an asset that only a central bank can provide.

Schnabel Explains Why Stablecoins Cannot Serve as Settlement Assets

Schnabel acknowledges that stablecoins can be designed to be nearly risk-free. Her concern is about the scenario that follows.

During a panic, demand for cash spikes. A central bank has the ability to create additional cash. A stablecoin issuer lacks that capability.

She cited the banking panic of 1907 as a comparable situation. At that time, money was linked to banks' government bond holdings, preventing expansion of the money supply. The Federal Reserve Act of 1913 resolved that issue.

“Stablecoins are best understood as complements to central bank money, not substitutes for it,” read an excerpt in her speech.

Supply data illustrates why Europe is in a rush. According to DefiLlama, dollar-pegged stablecoins have a circulation of about $304 billion. Euro-pegged tokens account for less than $1 billion.

If private tokens dominate settlement, Europe would effectively settle in dollars. Crypto appeared on the Fed's Jackson Hole agenda for the first time this year. Other central bankers have also issued similar cautions about stablecoins.

Pontes Go-Live Puts Central Bank Money on a Ledger

Pontes will become operational next month, connecting TARGET Services—the eurozone's settlement infrastructure—to commercial blockchain platforms.

The infrastructure has already been tested. Between May and November 2024, 64 institutions in nine jurisdictions conducted 58 use cases, settling close to €1.6 billion in central bank money.

Initially, cash finality will stay within TARGET2. Smart contracts and 24/7 operation are planned for later phases.

Schnabel weighed three routes:

• Direct token issuance on blockchain
• A bridge from existing systems
• Allowing a private firm to tokenize reserves through an omnibus account

Schnabel favors the first option. The other two would leave the ECB on the sidelines, unable to conduct repo operations through code.

A separate initiative called Appia is still deliberating on whether Europe should use a single shared ledger or multiple ones. Schnabel pointed to France's Lise, which holds Europe's first tokenized exchange license, as proof that tokenization can make markets accessible to smaller companies.