Morgan Stanley is highlighting increasing interest in central bank digital currencies (CBDCs) in a recent report about the potential decline of the U.S. dollar's global dominance.
What Happened: The bank's report suggests a significant trend toward reducing reliance on the U.S. dollar paralleled by growing enthusiasm for digital currencies like Bitcoin BTC/USD stablecoins and CBDCs.
“By mid-2023, 111 countries, representing over 95% of global GDP, are actively exploring CBDCs," Andrew Peel, the executive director and head of digital asset markets at Morgan Stanley, said in the report.
Peel elaborated on the rationale for CBDCs, saying they leverage "the efficiency, transactional savings, and the benefits of distributed ledger technology (DLT), a permissioned version of blockchain technology, while ensuring oversight and control."
The report points out that "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."
Why It Matters: The efforts by the European Union and particularly China to increase their currencies' roles in international trade, aiming to establish it as a viable alternative to the U.S. dollar chip away at the dollar's dominance.
A "digital dollar" is not on the horizon — for now. But considering projects like mBridge, which involves central banks from China, Hong Kong, Thailand and the UAE, this policy may be subject to change.
Even though former U.S. President Donald Trump has vowed never to allow a CBDC in the U.S., broader geopolitical and economic dynamics could prompt policymakers to take a second look at the topic.
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What's Next: The report emphasizes: "A clear shift towards reducing dollar-dependency is evident, simultaneously fueling interest in digital currencies such as bitcoin, stablecoins and CBDCs.”
This statement underscores the potential for reshaping the global financial landscape, influenced by the adoption and integration of digital currencies.
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