One scenario for the wider adoption of cryptocurrencies is the collapse of traditional money. According to the former head of Morgan ...
One scenario for the wider adoption of cryptocurrencies is the collapse of traditional money. According to the former head of Morgan Stanley Asia Stephen Roach, in 2021 the US dollar may depreciate by a third. This will happen due to a sharp reduction in household savings and an increase in government debt against the backdrop of a successful exit from the crisis of the main trade partners of the United States, writes RBC Crypto .
“Currencies strike a balance between a country's internal economic base and external perceptions of its strength or weakness. In the US, this balance is rapidly changing, so that the collapse of the dollar is possible in the near future, "- said Roach.
He recalled that from January to April, the dollar index increased by 7%, as investors around the world invested in the US currency to protect their savings during the crisis caused by the spread of Covid-19. The dollar is now quoted 33% above the 2011 lows, according to the Bank for International Settlements (BIS). However, next year, adjusted for inflation, the USD could fall by 35%, Roach said.
US partners against the dollar
According to BIS, the largest US partners are China, the European Union, Mexico, Canada and Japan. The value of the currencies of these countries determines the exchange rate of the dollar on international markets by 72%. This means that in order to weaken it, they must strengthen, which is quite possible.
“Shifts in the exchange rate are the result of comparing the US to Europe, China, and so on. The forecast for a 35% decline in the value of the dollar is based on a comparison of America with its main trading partners, ”the economist explained.
He argues that Beijing will reorient towards domestic consumption, which will lead to the strengthening of the yuan, even though the risk of the continuation of the trade war with the United States. On a trading volume basis, the euro now looks 15% undervalued from its April 2008 high, Roach added.
Currencies in Canada and Mexico will strengthen on the back of recovery in economic activity and oil prices. There is no need to talk about the growth of the yen, but four currencies will be enough to affect the weakening of the dollar, the former head of Morgan Stanley Asia said.
There is one but
The head of the analytical department of AMarkets Artem Deev questioned the likelihood that the currencies of the main US trading partners will rise in price in the coming year. It is not a fact that these countries will be able to avoid the deep crisis in which the entire world economy is now.
The German economy is contracting at a record pace. During the pandemic, China lost 10% of GDP and will catch up with losses within 2-3 years, Deev said. Canada and Mexico are heavily dependent on exports to the United States, which may also decline. Increasingly, the second wave of the pandemic is predicted, which means that the world economy may contract even more than it is now (including the indicated American partners).
“In a global recession situation, all assets, including cryptocurrencies, can fall (as it was during the period from February to April of this year). It is premature to talk about investing in bitcoin as a “protective haven”, ”Deev said.
Dollar collapse: will or not
From July 1, anti-crisis payments in the United States will stop, and from October 1, financial obligations on student loans and mortgages will resume. Therefore, Roach predicts a record collapse in consumer savings by early 2021.
“During the 2008 crisis, domestic savings in the United States fell for the first time - by 1.8% of national income. Next year there will be a sharper plunge into the negative zone - by 5-10%, ”the economist believes.
This, coupled with a record $ 26 trillion in budget deficits last week, will make investing in US assets risky and force investors to look for alternatives. According to Roach, the result will be a collapse in the US dollar and stagflation - accelerating inflation coupled with weak economic growth.
“I have been hearing about the expected collapse of the dollar since 2001, but for 19 years the dollar has remained a defensive asset, and the US is flourishing. According to the latest data, the US debt is $ 26.1 trillion, the European Union - $ 14.2 trillion, Japan - $ 13.5 trillion. All world powers have big debts, but today they only talk about the United States, ”said Vladislav Antonov, an analyst at IAC“ Alpari ”.
He advised keeping funds in different currencies (euro, dollar, yen and bitcoin). Gold is a safe haven from inflation, so 10% of the portfolio should be precious metal, the analyst said. He added that investing in cryptocurrency cannot exclude high risks, but we can say for sure that it needs to be kept in a portfolio.
Is it worth buying cryptocurrencies and how much
The head of the Treasury of SDM Bank, Eduard Lushin, explained that cryptocurrencies have found their user among countries and companies that are threatened by sanctions. The new type of assets plays the role of a tool to bypass the dollar settlement system and hide the traces of transactions with sanctioned structures.
“To a greater extent, cryptocurrencies depend on trade wars and sanctions. China plays an important role, accumulating most of the mining capacity. Cryptocurrencies are a tool with a huge risk, in the investment portfolio such instruments will be more likely in the section of alternative investments, and their share should not exceed 10% of the total portfolio volume, ”Lushin said.
The cost of cryptocurrencies will depend not so much on the fall or inflation of the dollar, but on the further prospects for the development of the digital money market itself, says Roman Lavnik, Ph.D., Managing Partner of Lavnik & Partners.
“At present, there is no opportunity to consider cryptocurrencies as a full-fledged financial asset, since the legal status of the latter in most countries of the world has not yet been settled. Now cryptocurrencies are showing an obvious upward trend in value, which is associated with a general increase in digital literacy of the population, the transition of many financial transactions to online, the development of online businesses and telecommuting. So the high cost of the cryptocurrency will remain, but I would not be in a hurry to expect a colossal increase in its price, ”Lavnik said.
He advised not to rush to invest in cryptocurrency, given the uncertainty of its legal status and operations with it, especially in Russia. In a crisis situation, the value and demand for other, more traditional (from a legal point of view) assets, for example, gold and shares of gold miners, will grow.
“As for cryptocurrencies, since they are not state means of payment, any country at any time can restrict operations with cryptocurrencies or completely ban them, which creates additional risks for cryptocurrency holders. As one of the directions in the diversification of your investment portfolio - why not. But I would not recommend considering investments in cryptocurrency as the main tool in my portfolio, ”the expert noted.
The collapse of the dollar is predicted over the past twenty years, but so far it has not happened. Roach's arguments are not conclusive, as the financial crisis could also affect the US trading partners. However, cryptocurrencies remain a promising asset that will develop in the coming years. Therefore, experts advise keeping a part of your portfolio in them.
