Morgan Stanley believes Bitcoin, CBDCs have the potential to ‘de-dollarize’ the world

Wall Street giant Morgan Stanley believes the rise of Central Bank Digital Currencies (CBDCs) and digital assets like Bitcoin and stablecoins could potentially disrupt the U.S. dollar’s longstanding dominance in the global economy.

The lender made the analysis in a recent report titled “Digital (De)Dollarization?” — which highlights the disproportionate influence of the U.S. dollar in global finance and the existential threat posed by digital currencies and CBDCs.

Dollar’s slipping dominance

Despite the U.S. contributing about 25% of global GDP, the dollar constitutes nearly 60% of global foreign exchange reserves. However, this dominance is now under scrutiny, partly due to the U.S.’s growing twin deficits and strategic economic sanctions prompting nations to seek dollar alternatives.

The European Union and China are making strides to bolster the euro and yuan in international trade. The EU focuses on enhancing the euro’s role, especially in energy and commodity transactions. China is promoting the yuan through its Cross-Border Interbank Payment System, challenging the dollar-centric payment systems.

Meanwhile, other countries have created the BRICS organization to develop non-dollar methods of trade among each other, while Russia has been looking into using private digital currencies for some cross-border trades.

The report suggests that the ascent of digital currencies and CBDCs represents a significant challenge to the traditional dominance of the dollar in international finance. These emerging technologies offer more efficient, transparent, and accessible financial solutions, potentially reducing reliance on traditional banking systems and the dollar in international transactions and reserves.

Rise of the digital currencies

The report analyzes the potential impact of these digital currencies and CBDCs on the global financial system. It posits that as these technologies gain acceptance and usage, they could offer practical alternatives to traditional cash and fiat currencies.

This shift is poised to reduce the reliance on the dollar for international transactions and central bank reserves, potentially altering the balance of global economic power.

According to the report, Bitcoin, with its decentralized nature and capped supply, has evolved from a niche online concept to a globally recognized asset, with an adoption rate of 106 million owners worldwide. The flagship cryptocurrency’s expanding global reach and national adoption by countries…