## SPEECH
### From money market funds to stablecoins: lessons for central banks
## Speech by Isabel Schnabel, Member of the Executive Board of the EcB,atthe2026BankofKoreaInternationalConferenceonCentral Banks and the Future of Money
### Seoul,1June2026
The nature of money has never been static. Over the centuries, financial innovation has reshaped how money is created, transferred and stored, often enhancing efficiency, broadening access and boosting economicwelfare. When such innovations reach scale, they alter the structure of the financial system, with currencies and typically backed by portfolios of traditional assets. Their rapid rise has raised questions about their benefits and challenges. To understand the unfolding changes, it is worth looking at how earlier innovations transformed financialmarkets. of Amsterdam, which can be seen as an early form of stablecoin.11 Itseventualdecline,however,illustrateshowsuchtrustcandissipateonceconfidenceinthe created a highly liquid investment instrument that offered a market-based yield while promising a stablevalue,reshapingfinancialintermediation. In my remarks today, I will examine the parallels and differences between the emergence of money market funds and that of stablecoinstoprovide aperspective on the challengesposed bystablecoins andotherformsoftokenisationfortoday'sfinancialsystem. can heighten financial stability risks, affect monetary policy transmission and alter the international
### Theriseofmoneymarketfunds
The emergence of money market funds in the 1970s was initially a distinct US phenomenon, driven by regulationandthemacroeconomicenvironment. The key backdrop was Regulation Q, introduced in the aftermath of the Great Depression, which imposed interest rate ceilings on bank deposits in order to contain "excess competition" among banks. s delivering higher yields. 2 Money market funds met this demand by investing in a diversified portfolio of high-quality, short-term ofvalueandliquidity. Over time,money market funds became central actors in wholesale funding markets and major buyers of short-term financial instruments, such as commercial paper,repurchase agreements and Treasury bills. The rise of money market funds in the United States led to some bank disintermediation as savings migrated frombank depositsinto money market funds (Slide 2,left-hand side).As a result,banks increasingly shifted towards wholesale funding, such as repos and other market-based sources, making part of their funding more short-term, expensive and volatile (Slide 2, right-hand side).3] At the same time, money market funds benefited the financial system and the economy more broadly. the expansion of market-based finance(Slide3,left-hand side). WhilethefirstmoneymarketfundsinEuropewereestablishedintheearly1980s,it wasnotuntil the 1990s that they really took off. They have since become an integral part of the euro area financial system. markets. Evidence from Germany suggests that the authorisation of money market funds in 1994 led aroundthattime(Slide3,right-handside). This was also reflected in banks' stock prices: the Deutsche Bundesbank's decision to drop its initial immediately after it was announced. 4]
greater choice,while financial markets became deeper and more diversified.
### Challengesfromstablecoins
traditional banking system, thereby potentially contributing to the disintermediation of banks.
But there are also important differences, especially in terms of remuneration and use cases.
Theattractivenessofmoneymarketfundshastraditionallyrestedontheirabilitytooffercompetitive market yields. Stablecoins, by contrast, do not generally pay interest, at least not directly.5 Stablecoins do not therefore constitute an attractive store of value, compared with money market funds or remunerated bank deposits.[]
swiftlyandisnowclosetoUsD300billion,althoughgrowthhasmoderatedrecently.Thetwolargest of thetotal market.Euro-denominatedstablecoinshavesofarplayed onlya marginalrole,with a
money across borders.]
though other types of transactions are gaining ground (Slide 5, right-hand side).
The rapid growth of stablecoins worldwide means that central banks must assess their implications carefully. Three aspects stand out: financial stability, monetary policy and the international financiall order.
## Stablecoinscantriggerruns and firesales
Thefirst areaofconcernisfinancialstability.
In general, the expansion of market-based finance, including via money market funds, has contributed to financial stability by offering greater diversification opportunities for both investment and funding, and by making the system more resilient by not relying exclusively on bank intermediation.
new fragilities in the financial system.]
amplified banks' vulnerability to runs.]
Stablecoins could imply a new wave of bank disintermediation, even if they are unremunerated. deposit base as retail deposits are replaced by wholesale deposits.[10l This shift would make banks'
liabilitiesmoreconcentrated,rate-sensitiveandvolatile. The second fragility relates to the risk that money market funds, or stablecoins for that matter, may facerunsthemselves. This risk became evident during the global financial crisis, which exposed the vulnerability of money market funds to runs and the lack of a safety net to mitigate systemic risks. After the failure of Lehman value fell below par, triggering widespread redemptions, fire sales and a freeze in short-term funding markets (Slide 6, left-hand side).11 We have seen money market funds come under stress on several further occasions in recent years, pandemic. 12 Duetotheirliquiditymismatchandapotentiallossoftrustinthequalityoftheassets,theyarealso subject to the risk of runs. 13] And with the size of the largest US dollar-pegged stablecoins now significant (Slide 6, right-hand side). How such runs might eventually play out will depend critically on a stablecoin's reserve assets (Slide 7,left-hand side). Tether, for example, holds parts of its reserves in relatively illiquid and risky assets, including commodities, loans and crypto-assets, making it more vulnerable to a loss of confidence in the quality debt markets and broader fixed-income markets if large redemption requests were to force fire sales. the reserve assets may still be subject to traditional settlement at T+1 or T+2.14 By contrast, European stablecoins are legally required to hold a high share of their reserve assets in theformofbankdeposits.UndertheEU'sMarketsinCrypto-AssetsRegulation(MiCAR)at least30% While these requirements aim to increase the liquidity of reserves and limit disintermediation, they also and the traditional banking sector, for example by exposing stablecoins to bank default risk.16 TheeventsofMarch2023highlighted theserisksintheUnitedStates.USDCoin'spegcameunder doubts about the quality and availability of its assets. 17 Conversely,arunonastablecoincouldleadtosuddenwithdrawalsofreservesheldatbanks, implying contagion in the opposite direction. Since MiCAR came into force in 2023, euro area banks'
remain small relative to the exposed banks' total assets (Slide 7, right-hand side).
## Stablecoins affect financial conditions and monetarypolicy transmission
Thesecond challengeconcernsmonetarypolicy. stablecoinsandchanges inthetransmissionofpolicyratedecisions. Regarding the structural changes induced by a potential shift towards stablecoins, the implications couldbesimilartothoseoftheriseofmoneymarketfunds. Theshift towards morevolatilewholesalefunding would tend toraisebanks'funding costs and tighten theirregulatoryliquidityrequirements,whichcouldinducethemtoincreasetheirholdingsofhighquality liquid assets (HQLA) and could constrain banks' capacity to extend credit to firms.18] Overall borrowers like small and medium-sized enterprises. At the same time, the adoption of stablecoins could imply an easing of financial conditions if issuers weretoinvest theirreserves inshort-term governmentsecurities,creating an additional demand for those securities.19 Hence, similar to money market funds, stablecoins could contribute to channelling liquidity into market instruments.20 This would reduce yields on government debt, which would likely also be transmitted to other short-term rates in the economy. with limited to no spillovers to other tenors, leading to a steepening of the yield curve.211 If stablecoin issuance prompts banks to rebuild their liquidity buffers by buying government securities, governmentdebtcouldalsoresultinacrowdingoutofprivateborrowers. relative terms, bank lending conditions are likely to tighten relative to market conditions.23] realeconomy. alternativetodeposits,theyhavemadebankfundingcostsmoresensitivetomarketconditions. But the extent of this effect depends on the relevance and accessibility of money market funds in the financial system: in the United States their share relative to GDP is twice as high as in the euro area
(Slide 8, right-hand side).
deposits into time deposits and bank bonds, with only limited migration into money market funds. By contrast, the United States experienced substantial deposit outflows from banks into money market funds (Slide 9).
For stablecoins,however, this channel is likely to play out differently-at least if stablecoins are unremunerated. Higher policy rates would increase the opportunity costs of holding unremunerated stablecoins,reducingtheirattractivenessandpromptinginvestorstorebalancetowardsyield-bearing financial assets,includingbankdeposits.
Recentresearchindeedshowsthat,unlikemoneymarketfunds,stablecoinstend toexperience outflows following contractionary US monetary policy shocks, behaving more like unremunerated bank deposits (Slide 10, left-hand side).241 This is consistent with descriptive evidence on the co-movement of stablecoin growth relative to other instruments with policy rates (Slide 10, right-hand side).
The net impact of stablecoins on monetary policy transmission is then shaped by two opposing forces.
On the one hand, greater reliance on wholesale funding would strengthen transmission - as wholesale
ECB research shows that, in response to a contractionary monetary policy shock, banks that rely more heavilyonwholesalefundingincreasebothlendinganddepositratesmorestronglyandcutloan growth by more, while at the same time increasing the uncertainty around the impact of monetary policy actions (Slide 11).25
holdingsintobankdeposits,dampeningtheinitial transmissionimpulse.
The net effect hinges on the elasticity of this substitution.If stablecoins are adopted primarily as a payment instrument rather than a store of value, users are likely to maintain stablecoin holdings for onbalancestrengthenmonetarypolicytransmission.
Finally, unremunerated stablecoins, if systemically relevant, could reinforce the zero lower bound constraintonthepolicyrate,asnegativeinterestratescouldrenderstablecoins'businessmodel unprofitable, leading to a collapse of the market. In fact, the significance of the money market fund industry in the United States likely contributed to the Federal Reserve shying away from negative interestrates.
### Stablecoinscouldcementtheinternationaldominanceofthedollar
Thethirdaspectconcernstheinternationalmonetaryorder.
dollar. By supplying short-term dollar funding, they deepened and internationalised wholesale dollar funding markets.26
Through the Eurodollar market, money market funds expanded cross-border dollar credit and strengthened the private international dollar system. The US dollar-based system became selfreinforcing through network effects that created persistence and inertia.27]
This can be seen in global funding markets, where the share of the US dollar has held up well over recentyears,remainingclosetoitslong-runaverage,unlikewithforeignexchangereserveswherethe dollarhasgraduallylostsomeground,inpartdrivenbyshiftsinthegeopoliticallandscape(Slide12)international monetary policy transmission. Not least due to the dominant role of the dollar, US monetary policy has become a major driver of the global financial cycle.28] The growing use of stablecoins may further cement the international dominance of the US dollar. negligible role (Slide 13, let-hand side).29 international transmission of US monetary policy (Slide 13, right-hand side). Under a scenario of broad US dollar-backed stablecoin adoption - a scenario more relevant for emerging market economies - a than under a scenario of no stablecoin adoption.30] abyproductoftheadoptionofthenewtechnology,ratherthanadeliberatecurrencychoice. In jurisdictions with weaker monetary credibility, residents may increasingly hold dollar-denominated claims, intensifying currency substitution and endangering monetary sovereignty by weakening the impactofdomesticmonetarypolicyandstrengtheningtheroleoftheexchangeratefordomestic inflation.31 But even for regions with strong monetary credibility, the persistent dominance of US dollar stablecoins could, over time, have undesirable consequences if it strengthens US dollar invoicing and As with the rise of moneymarket funds,the dollar's dominance would bereinforced,not necessarily advantages.
## system
What do these challenges imply for central banks today, and for the ECB in particular? A key implication is that central banks cannot remain passive observers of these developments. History has shown that, once private forms of money are widely adopted, they shape the structure of to resist innovationbut to ensure that it developswithin a framework that preserves stability,monetary control and trust in the currency. First, as regards financial stability, the lesson from money market funds suggests that appropriately
regulating stablecoins is critical to containing financial stability risks. This includes requirements concerning the quality and liquidity of reserves, transparency about reserve composition and valuation, andredemptionsafeguards. speed of monetarytransmission.A shift towardsmorerate-sensitive and lessstablefunding can amplify theresponsiveness of bank lending topolicy changes,while shifts into and out of stablecoins in reaction to rate changes could have the opposite effect. Third, at the international level, central banks, alongside other players, should help ensure that the emergingtokenisedfinancialsystemremainsopenandmulti-currencyinnature. the instrument itself.32 This is exactly the strategy the ECB has chosen in order to preserve the anchoring role of central bank moneyinanincreasinglydigitalisedworld:providingapublicsettlementassetthatcomplementsand enablesprivateassetsliketokeniseddepositsandstablecoins(Slide14).
bank digital currency (CBDC) and tokenised central bank money as a wholesale CBDC.
The Eurosystem's payment landscape is undergoing some fundamental changes (Slide 15). Cash use channels.33 privatelycreatedmoneyofferedbybanksand,potentially,non-banks.Second,it strengthens in retail payments. 34]
stakeholders: consumers, merchants, banks and innovators (Slide 16).
### AwholesaleCBDCprovidesapublicsettlementassetandfostersinnovation
Inparallel,theEurosystem isworkingonawholesaleCBDC. Tokenisation holds much promise to improve the efficiency of the financial and payment system, for likestablecoinscannotfulfil inthesameway. The Eurosystem is currently working on two projects that aim at providing tokenised wholesale central bank money: Pontes and Appia (Slide 17).35 (DLT)-based transactions to be settled in central bank money, providing a bridge between DLT platformsandourTARGETservices. Appiaintendstoprovidethebroadervisionofwhatafuture-proof,innovativeand integratedEuropean andinteroperabilityoftokenisedtraditionalassets,aswellascross-borderaspects. the euro remains a safe and attractive means of payment domestically while alsofostering its TIPSandtheexpansionofourliquiditylineframeworkEUREP.
## Conclusion
Letmeconclude. In my remarks this morning I have described how the nature of money is changing and how one recent innovation - fiat-pegged stablecoins - may affect the core of central banks' business: monetary policy, financialstabilityandtheinternational monetaryorder. While stablecoins promise efficiency improvements in the payment and settlement domain, much of theframeworkinwhichprivateinnovationcanthrive.Thishelpsensurethatnewforms ofprivate preserving its central role as the ultimate settlement asset. It remains to be seen whether, in such an environment, stablecoins can find their place in the financial systemjust as money market funds did 50years ago,or whether other innovations, like tokenised deposits, will prove to be the more promising alternative. In any case, as shown by the example of money market funds, innovation alone is not sufficient to policy transmission and the international role of the euro.
### Annexes
1 June2026
Slides
1. Money",Journal of Political Economy,Vol.132, No 12,pp.3919-3941;Frost, J., Shin,H.S.and WorkingPapers,No902,BankforInternational Settlements,November. 2. Federal Reserve History,"Money Market Mutual Funds". 3. The difficulties banks faced in attracting funding eventually led to the gradual phase-out of Regulation Q.This allowed themtocompetefor deposits,albeit at higher deposit rates. 4. Fischer, K.H. and Pfeil, C. (2004), "Regulation and Competition in German Banking: An Assessment", in Krahnen,J.P. and Schmidt,R.H.(eds.), The German Financial System, Oxford University Press, Oxford,UK,pp.291-349 5. IntheUnitedStates,theinterestincomeearnedbysomestablecoinissuersisusedforindirect remuneration, for example via profit-sharing arrangements. Indirect remuneration can arise when underMiCAR. 6. Thisappliesmainlyforadvancedandstableeconomies.Foreconomieswithhighinflationand attractive store of value. 7. Thecost advantage narrows substantially once one accountsfor on-and off-ramping costs and foreignexchangeconversioncosts. 8. Perspective",FinanceandEconomicsDiscussionSeries,No2022-012,BoardofGovernorsofthe Federal Reserve System.
9. See Ivashina,V. and D. Scharfstein (2010),"Bank lending during the financial crisis of 2008", Journal ofFinancialEconomics,Vol.97(3),pp.319-338. 10. Aggregate deposits could also shrink,forexample if stablecoinsheld theirreserves in government securities bought from banks. Under MiCAR, the risk of a smaller deposit base is mitigated by requirementsonminimumholdingsofdepositswithcredit institutions.Anadditional concernis distributional. The banks receiving stablecoin deposits are likely to be large wholesale banks, while deposits may flow out mainly from smaller banks, which are typically important lenders to SMEs. 11. In quantitative terms,theredemptionsfrom money market funds in2008were massive.Overall,the flowsoutofprimeinstitutionalshareclassesamounted toUSD4o0billionduringthefirsttwoweeksof Funds",American Economic Review, Vol. 106,No 9,pp.2625-2657. See also Bengtsson,E. (2013), "Shadow banking and financial stability: European money market funds in the global financial crisis", JournalofInternationalMoneyandFinance,Vol.32(C),pp.579-594. 12. Chernenko, S.and Sunderam,A.(2014),"Frictions in shadow banking:evidence from thelending behavior of money market mutual funds", The Review of Financial Studies, Vol. 27, No 6, pp. 1717in corporate debt markets", Working Paper Series, No 3055, European Central Bank. 13. Kosse,A.,Glowka, M.,Mattei, I.and Rice,T. (2023),"Will the real stablecoin please stand up?",B/S Papers,No 141,Bank forInternational Settlements;Anadu,K.,McCabe,P.,Perez-Sangimino,J.P and Swem, N.(2026),"A Framework for Understanding\_the Vulnerabilities of New Money-Like Products"，FinanceandEconomicsDiscussionSeries,No2026-002,BoardofGovernorsofthe Federal ReserveSystem;Wang,J.(2025),"BanksintheAgeof Stablecoins:SomePossible Implications for Deposits, Credit, and Financial Intermediation,"FEDS Notes, No 2025-12-17-1, Board of Governors of the Federal Reserve System; Gorton, G.B. and Zhang, J.Y. (2023), "Taming Wildcat Stablecoins", University of Chicago Law Review,Vol. 90, No 3. 14. Instant settlement, continuous trading and global accessibility also mean that runs could propagate in
their role as lender of last resort.A tokenised financial system operates around the clock,yet emergencyliquidityfacilitieshavetraditionallybeendesignedforbusiness-hourcrises.SeeAdrian,T. (2026), Tokenized Finance, IMF Notes, International Monetary Fund, April. 15. sizeofreserveassetsexceedingEuR5billion. 16. A recentpaperhasarguedthatEUregulationdiscouragesthedevelopmentofstablecoinsinEurope and makes proposals how this could be changed, including by reducing the required share of reserves held as bank deposits, allowing for direct remuneration and giving stablecoins access to the ECB's balance sheet. See Reichlin, L., Sangers, B. and J. Zettelmeyer (2026), "A new strategy to contain stablecoin risks in the European Union",Bruegel Policy Brief, No 09/2026. 17. Anevenmoreextremeexampleisthecollapseof TerraUSD,whichwasnotbackedbyassetsbut relied on an algorithmic peg. 18. In addition, increasing holdings of HQLA may become more difficult as stablecoins raise aggregate supply. 19. necessarily be the case, for example if the increase in stablecoin holdings was accompanied by a divestment from money market funds. 20. The implications may extend beyond sovereign bond markets. In 2025, for example, Tether was a Report on the international roleof theeuro,June(forthcoming). 21. Ahmed,R.and Aldasoro,I.(2025),"Stablecoins and safe assetprices",B/S Working Papers,No 1270,BankforInternationalSettlements. 22. Born, A. et al. (2026),"Euro stablecoins and their potential effect on sovereign bond markets", MacroprudentialBulletin,Vol.33,ECB.
23.
Altavilla, C. et al. (2026),"Stablecoins and monetary\_policy transmission",Working Paper Series, No 3199,ECB. 24. Aldasoro, I. et al. (2025), "Stablecoins, money market funds and monetary policy", Economics Letters, (2026), op.cit. 25. Altavilla, C. et al.(2026),op.cit. 26. Aldasoro,I.,Ehlers,T.and Eren,E.(2022),"Global banks,dollarfunding,and regulation",Journal of InternationalEconomics,Vol.137(C),July. 27. Farhi, E. and Maggiori, M. (2018), "A Model of the International Monetary System", The Quarterly Journal of Economics,Vol.133,No 1,pp.295-355. 28. Jiang, Z., Krishnamurthy, A. and Lustig, H. (2024), "Dollar Safety and the Global Financial Cycle", The ReviewofEconomicStudies,Vol.91,No5,pp.2878-2915. 29. Krogstrup, S. (2026),"Stablecoins and Money", speech at the Centre for European Policy Studies, 21 January. 30. Ferrari Minesso, M. and Siena, D. (2026),"Private money\_and public debt. U.S. Stablecoins and the global safe asset channel",WorkingPaperSeries,No3174,ECB. 31. Aldasoro, 1., Frost, J. and Ito, H. (2026),"The impact of stablecoins on the international monetary and 32. See also Lagarde, C. (2026), "Stablecoins and the future of money: separating functions from 33. See ECB (2025), "Preparation phase of a digital euro - Closing report". 34.
See ECB(2025),"Digital euro innovation platform",September. 35. strategy", press release, 1 July; and ECB (2026), "Appia -paving the way for a future-ready,. integrated financial ecosystem leveraging tokenisation and DLT", press release, 11 March.
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