Crypto: Between threat and lifeline for the dollar according to Morgan Stanley!

The hegemonic position of the American dollar as the pivot of the global financial system faces new challenges with the rise of crypto, according to a recent report by Morgan Stanley. This digital currency has the potential to both weaken and strengthen the role of the greenback.

The Erosion of the Dollar’s Supremacy by Crypto

For Morgan Stanley, cryptocurrencies have a double-edged effect on the dollar’s primacy in the international financial arena.

On one hand, the rise of Bitcoin and stablecoins could eventually chip away at the dominance of the greenback. The US monetary policy and the use of sanctions are already driving some countries away from the dollar. This “dedollarization”, coupled with US deficits, impairs the dollar’s status as the world’s reference currency, according to Andrew Peel from Morgan Stanley.

On the other hand, the meteoric rise of cryptocurrencies like Bitcoin creates a vacuum. Although still in their infancy, these decentralized currencies could, if the enthusiasm continues, challenge the dollar’s leadership in the international economic arena in the future.

The Strengthening of the Dollar through Stablecoins

Paradoxically, stablecoins could instead cement the dollar’s status as the reference currency. These cryptos tied to the greenback replicate its stability.

Their growing adoption by traditional financial institutions demonstrates their ability to meet the need for fiat currency in the digital age. Rather than dispute the supremacy of the dollar, they could thus prolong it in a modernized form.

However, at the same time, the increasing appeal of central bank digital currencies (CBDCs) questions the predominant role of the dollar in international transactions. Eventually, CBDCs could become a standard for cross-border payments, reducing dependency on the dollar and the SWIFT network.

As Andrew Peel from Morgan Stanley wrote, “the growth of cryptocurrencies and stablecoins, combined with the promises of CBDCs, have the potential to significantly transform the monetary landscape”.

Thus, if they were to become widely successful, stablecoins pegged to the American dollar would disseminate the US currency worldwide. They would therefore contribute to the strengthening of the dollar as the dominant international currency.

Whether it’s cryptocurrencies like Bitcoin or stablecoins, the international monetary landscape is at a historical turning point under the growing influence of digital currencies. Their continued rise could enduringly transform the international role of the American dollar, for better or worse.