Rising stablecoin use could cement dollar dominance, ECB’s Schnabel says

FRANKFURT, June 1 (Reuters) – The increased use of stablecoins could reinforce the dollar’s global dominance, undermine some nations’ ability to set monetary policy and even diminish the role of ​the euro, European Central Bank board member Isabel Schnabel ‌said on Monday.

The use of stablecoins, a type of cryptocurrency pegged to certain assets and designed to maintain a stable value, is still relatively low but has increased quickly and modelling by analysts has suggested a further rapid ‌spread.

The ​vast majority of stablecoins are pegged to ⁠the U.S. dollar and ⁠a rapid growth in issuance could slow or even reverse a two-decades-long decline in the global role of the dollar, some economists say.

“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 told a Bank of Korea conference in ⁠Seoul, with reference to the rise ⁠in use.

The share of the dollar in foreign exchange ​reserves fell to below 57% last year, down from 70% at the ​turn of the century, as smaller currencies have taken its ‌market share, IMF data shows.

While a boost to the dollar from increased use of stablecoins could have the biggest impact on countries whose monetary policy lacks credibility, the implications, Schnabel said, could ⁠potentially affect the euro, too.

It could also be a vicious circle, as people may be more drawn to dollar-based stablecoins in countries lacking policy ⁠credibility, which could ‌further weaken the central bank’s ability to transmit ⁠policy change to the real economy.

“Even for regions ​with strong ‌monetary credibility, the persistent dominance of U.S. dollar ​stablecoins could, ⁠over time, have undesirable consequences if it strengthens U.S. dollar invoicing and global liquidity holdings,” Schnabel said.

“From a European perspective, this could eventually limit the euro’s role in emerging forms of tokenised finance and in the international monetary system more generally.”

(Reporting by Balazs Koranyi; editing ​by Barbara Lewis)