May 29, 2024
CBDCs and Bitcoin Could Impact U.S. Dollar's Role
Bitcoin News

U.S. Dollar Faces Global Threat from Bitcoin and CBDC Surge

A warning from Wall Street investment bank Morgan Stanley suggests that a shift in the perception and utilization of digital assets like Bitcoin and central bank digital currencies (CBDCs) may pose a threat to the prevailing status of the United States dollar as a global currency. Despite the U.S. dollar constituting around 60% of global foreign exchange reserves, Morgan Stanley’s Head of Digital Assets, Andrew Peel, expressed in a Jan. 12 investment note that a paradigm shift in the global perception and use of digital assets could challenge the dollar’s dominance.

Peel highlighted that this shift has been significantly expedited by the approval of several spot Bitcoin exchange-traded funds in the U.S. by the U.S. Securities and Exchange, with weekly inflows into these new products exceeding $1.18 billion. He also pointed to Bitcoin’s remarkable global adoption over the past 15 years, with 106 million people worldwide holding the cryptocurrency and the presence of Bitcoin ATMs in over 80 countries.

Furthermore, Peel noted that the dominance of the U.S. dollar could be impacted by the issuance of CBDCs by other countries, as these could facilitate rapid cross-border payments without the necessity of a common currency. According to Peel, CBDCs have the potential to establish a unified standard for cross-border payments, reducing reliance on traditional intermediaries like SWIFT and dominant currencies like the dollar.

Data from the Atlantic Council CBDC Tracker indicates that 130 countries, representing over 98% of global gross domestic product, are exploring or developing CBDCs, showing a substantial increase from just a few years ago. Peel added, “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.”

Despite the potential impact of Bitcoin and CBDCs on U.S. dollar dominance, Peel acknowledged that stablecoins could be a more beneficial addition to global finance. He described largely fiat-pegged stablecoins as crypto’s “killer app” and emphasized the growing significance of dollar-backed stablecoins, suggesting that they could reshape the financial sector by influencing how money is moved across borders.

Image by freepik

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