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Morgan Stanley notes that the growing influence of Bitcoin and the future proliferation of CBDCs could shake the dollar’s dominant position around the world.

Morgan Stanley, one of Wall Street’s leading names, expresses concerns about the long-standing leadership of the US dollar in the global economy with the growing popularity of digital assets such as Central Bank Digital Currencies (CBDCs) and Bitcoin.

This analysis is featured in their new report titled “Digital (De)Dollarization” highlighting the excessive influence of the US dollar in international finance and the potential risks posed by digital currencies and CBDCs.

Diminishing Dominance of the Dollar

Despite the United States contributing approximately 25% of the global GDP, the dollar still constitutes 60% of global currency reserves. However, due to increasing budget deficits and strategic economic sanctions, other countries have begun to explore alternatives to the dollar.

The European Union and China are making efforts to enhance the influence of the euro and yuan in international trade. The EU is focusing on strengthening the role of the euro in energy and commodity transactions, while China is promoting the yuan as an alternative to dollar-centric payment systems.

Meanwhile, BRICS countries are collaborating to develop non-dollar trade methods among themselves, and Russia is considering the use of private digital currencies in some international transactions.

The report asserts that the rise of digital currencies and CBDCs presents a significant challenge to the traditional dominance of the dollar in international finance. These new technologies have the potential to offer more efficient, transparent, and accessible financial solutions, reducing reliance on traditional banking systems and the dollar in international transactions.

The Unstoppable Rise of Digital Currencies

The report examines the potential impacts of these digital currencies and CBDCs on the global financial system. With increasing acceptance and usage, these technologies could provide alternatives to traditional cash and fiat currencies.

This shift could diminish the role of the dollar in international transactions and central bank reserves, potentially altering the balance of global economic power.

According to the report, Bitcoin, with its decentralized nature and fixed supply, has evolved from a small online concept into a global asset, reaching over 100 million users worldwide. Bitcoin‘s expanding influence on the international stage and its adoption as an official currency in countries like El Salvador signify a significant transformation in national financial policies.

Morgan Stanley also emphasizes the growth in the usage of stablecoins, which facilitated $10 trillion worth of transactions in 2022, as another indicator of the changing financial landscape. Stablecoins are becoming a popular payment method due to their constant accessibility and fast transaction times.

Additionally, the integration of stablecoins into payment systems of companies like Visa and PayPal highlights their increasing importance in the global financial ecosystem.

CBDCs Could Replace the Dollar

The report also discusses the rapid development of CBDCs and their potential impact on the dominance of the dollar in the market.

More than 100 countries are exploring digital versions of their national currencies, which could lead to revolutionary changes in financial systems. Examples like China’s digital yuan and Brazil’s DREX project demonstrate the potential of CBDCs to make financial transactions more efficient and inclusive.

According to Morgan Stanley, the rise of CBDCs could reduce dependence on traditional financial intermediaries, especially systems like SWIFT, leading to a decrease in the use of dominant currencies like the dollar.

The report mentions the mBridge project, involving central banks from multiple countries, as an example of how CBDCs could facilitate efficient cross-border payments using smart contracts.

Morgan Stanley‘s analysis indicates that CBDCs and other private digital currencies could provide genuine alternatives to traditional cash and fiat currencies. This shift, driven by digital innovations and changing geopolitical dynamics, could gradually reduce the role of the dollar in international finance in the future.

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