Bitcoin’s ‘remarkable’ growth and CBDCs threaten the US dollar: Morgan Stanley

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A “paradigm shift” in the perception and use of digital assets such as Bitcoin (BTC) and central could threaten the dominance of the United States dollar as a global currency, warns Wall Street investment bank Morgan Stanley. 

While U.S. dollar currency makes up roughly 60% of global foreign exchange reserves, a “paradigm shift in the global perception and use of digital assets” could challenge USD’s leadership, wrote Morgan Stanley’s head of digital assets, Andrew Peel, in a Jan. 12 investment note.

Peel said the shift has now been significantly accelerated by the SEC’s approval of a roster of spot Bitcoin ETFs in the United States, with weekly inflows into the new products topping $1.18 billion.

Additionally, Peel looked to Bitcoin’s “remarkable” global adoption over the past 15 years as evidence for its continual growth, noting that 106 million people around the world currently hold the cryptocurrency and added that there are now Bitcoin ATMs in more than 80 countries.

Meanwhile, other countries’ CBDCs could also impact USD’s dominance, which would enable speedy cross-border payments without the need for a common currency, such as the United States dollar.

“[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.”

According to data from CBDC Tracker, 130 countries — which represent over 98% of global GDP — are currently in the process of exploring or developing CBDCs, marking an outsized increase from just a few years prior.

130 countries are currently in the process of exploring a CBDC. Source: Atlantic Council

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“Furthermore, CBDCs can enable significant innovation in financial services, such as the use of smart contracts for automating payments, making the concept of programmable money a practical reality,” Peel added.

While Bitcoin and CBDCs could impact U.S. dollar dominance, Peel noted that stablecoins could prove a more helpful addition to global finance, describing the largely fiat-pegged stablecoins as crypto’s “killer app.”

“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.”

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