Morgan Stanley Sees Potential for Bitcoin, CBDC to “De-Dollarize” the World

The dollar’s global dominance is threatened by the rise of Bitcoin and the eventual proliferation of CBDCs, says Morgan Stanley.

Wall Street giant Morgan Stanley believes the rise of central bank digital currencies (CBDC ) and digital assets such as bitcoin and stablecoins could undermine the dollar’s long-term dominance in the global economy.

The lender made its case in a recent report titled “Digital (De)dollarization?” The analysis was made in a report.” This highlights the dollar’s disproportionate influence in global finance and the existential threat posed by digital currencies and CBDCs.

Sliding dollar dominance

While the U.S. contributes about 25% of global GDP, the U.S. dollar accounts for nearly 60% of global foreign exchange reserves. However, this dominance is now under close scrutiny, in part because the growing twin deficits and strategic economic sanctions in the U.S. have prompted countries to seek alternatives to the dollar.Kaspa Miner

The EU and China are making a strong push for the euro and the renminbi in international trade. The EU is committed to strengthening the role of the euro, particularly in energy and commodities trading. China is promoting the renminbi through its cross-border interbank payment system, challenging the dollar-centered payment system.

Meanwhile, other countries have formed the BRICS organization to develop non-dollar ways of trading with each other, while Russia has been considering using private digital currencies for some cross-border trade.

The report suggests that the rise of digital currencies and CBDCs poses a significant challenge to the traditional dominance of the U.S. dollar in international finance. These emerging technologies offer more efficient, transparent, and accessible financial solutions that have the potential to reduce reliance on the traditional banking system and the U.S. dollar in international transactions and reserves.

The Rise of Digital Currencies

This report analyzes the potential impact of these digital currencies and CBDCs on the global financial system. It argues that as these technologies gain acceptance and use, they could provide a practical alternative to traditional cash and fiat currencies.

This shift is expected to reduce reliance on the U.S. dollar for international transactions and central bank reserves, potentially shifting the balance of power in the global economy.

Bitcoin, with its decentralized nature and supply cap, has grown from a niche online concept to a globally recognized asset with 106 million holders worldwide, the report said. The flagship cryptocurrency’s growing global influence and its adoption as legal tender by countries such as El Salvador marks a historic shift in national financial strategy.Kadena Mining Asic

Morgan Stanley also points to the growing use of stablecoins, which will reach $10 trillion in payment transactions by 2022, as another sign of a shifting landscape. Stablecoins are increasingly becoming the payment method of choice due to their 7×24 access and instant settlement.

Additionally, their integration with payment systems from companies like Visa and PayPal is another sign of their growing importance in the global financial ecosystem.

CBDC Could Replace the U.S. Dollar

The report also delves into the rapid growth of CBDCs and their potential impact on the dollar’s market dominance.

More than 111 countries are exploring digital versions of their currencies, which could revolutionize the financial system. China’s digital renminbi and Brazil’s DREX are examples of how CBDCs can facilitate more efficient and inclusive financial transactions.

Morgan Stanley says the rise of CBDC could simplify cross-border payments and reduce reliance on traditional financial intermediaries such as SWIFT, which in turn could reduce the use of dominant currencies such as the U.S. dollar.

The report points to the mBridge project, which involves the central banks of several countries, as an example of how CBDCs can use smart contracts to facilitate efficient cross-border settlements.

Morgan Stanley’s analysis points to a future where CBDCs and other private digital currencies will be viable alternatives to traditional cash and fiat currencies. This shift could gradually diminish the role of the dollar in international finance, influenced by digital innovations and changing geopolitical dynamics.