Morgan Stanley: Bitcoin and CBDCs Threaten US Dollar’s Dominance as Global Currency

Andrew Peel, the Head of Digital Assets at financial services giant Morgan Stanley (NYSE: MS), has warned that the use of cryptocurrencies like Bitcoin could negatively impact the US dollar. Peel said a potential paradigm shift in the way people view and interact with digital assets, including CBDCs (Central Bank Digital Currencies), could weaken the US dollar’s dominance as a global currency.

 

Perception of Bitcoin and CBDCs May be Bad for the US Dollar

 

In an investment note on Friday, Peel highlighted “a paradigm shift in the global perception and use of digital assets” as a threat to the dollar. The report notes that the past 15 years of Bitcoin’s existence have seen global adoption grow at a “remarkable” rate. There are now 106 million people holding Bitcoin, with Bitcoin ATMs available to holders in more than 80 countries. In addition to the increase in the popularity and adoption of cryptocurrencies, Peel noted the recent approval of spot Bitcoin exchange-traded funds (ETFs) by the United States Securities and Exchange Commission (SEC). The report states that this is a factor that supports the growth and adoption of cryptocurrencies and potentially threatens the dollar.

 

In addition to Bitcoin, Peel highlights the role played by CBDCs. The note explains that these central bank currencies could also weaken the dollar for many reasons. One such reason is a CBDC’s function as a tool for cross-border transactions, facilitating the transfer of funds without relying on the dollar. Peel wrote: “[CBDCs] hold the potential to establish a unified standard for cross-border payments, which could diminish the reliance on traditional intermediaries like SWIFT and the use of dominant currencies such as the dollar…With their increasing importance, dollar-backed stablecoins are set to have a profound impact on the financial sector, potentially reshaping how money is moved across borders.”

 

Despite warning about the effect of CBDCs on the dollar, especially with cross-border payments, Peel noted advantages of central bank currencies, including supporting global finance. The report states that CBDCs can significantly support innovation by automating transactions using smart contracts. This encourages the use of “programmable money”, making the possibility very real.

 

CBDCs So Far

 

More than 100 countries have either launched a CBDC or are currently working on one. According to the Atlantic Council’s CBDC Tracker, only 35 countries considered a CBDC as of May 2020. Now, 130 countries, 98% of the world’s GDP, are now exploring digital versions of their national currencies. The tracker shows that 11 countries have launched CBDCs, while 21 and 33 are in the pilot and development stages, respectively. In addition, there are currently 46 countries in the research phase. Last year, Morgan Stanley predicted in a research report that the stablecoin market should expect more government regulation as its popularity increases. However, the report suggested that the regulation may not be as accommodating as people might expect.

 

In November, Morgan Stanley offered a bullish prediction for the crypto sector. According to the company’s analysts in a report, Bitcoin will see an impressive bull run following the upcoming halving event expected in April. However, the report did not specify a price target.