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, according to European Central Bank board member Isabel ‌Schnabel.

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 US 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 per cent last year, down from 70 per cent 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 US dollar stablecoins could, over time, have undesirable consequences if it strengthens US ⁠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.”