Central bank digital currencies do not threaten the existence of cryptocurrencies, Morgan Stanley says

• Morgan Stanley said cryptocurrencies will still exist even if central banks issue their own digital currencies.
• The bank said the uses and appeals of central bank digital currencies and cryptocurrencies are different.
• It said cryptocurrencies can be seen as a store of value, similar to gold, and a speculative asset.

Cryptocurrencies will continue to exist even if central banks start issuing their own digital currencies, because they serve different purposes and have different appeals, analysts at Morgan Stanley have said.

They said in a report on Monday government-backed digital currencies probably pose the biggest risk to stablecoins - that is, cryptocurrencies that reflect underlying assets, such as the one planned by Facebook.

But the analysts, including Morgan Stanley's chief economist Chetan Ahya, said "Cryptocurrencies will still exist, as they continue to serve other use cases.

"For instance, some cryptocurrencies can function as a store of value... as some segments of the public do not place their full faith in fiat currencies."

Some analysts have suggested CBDCs could cut the appeal of technologies such as bitcoin, with a Bank of America report saying they could be like "kryptonite" to crypto.

But Morgan Stanley's report said the reasons for investing in cryptocurrencies appeared to have evolved, with buyers increasingly viewing digital coins like bitcoin as new institutional asset classes, rather than replacement payment systems.

"Investors' interest in cryptocurrencies has risen alongside the unprecedented monetary and fiscal policy response to the pandemic," the report said.

Central bankers are increasingly interested in launching digital currencies. Research and development efforts are underway at 86% of the world's central banks, according to the Bank of International Settlements.

Morgan Stanley said central banks have been spurred to action by the rapid growth of digital payments and threats to their control over money by private companies.

A central bank digital currency, known as a CBDC, would let people access central bank money digitally to hold and make payments.

The public can currently only hold central-bank issued money in the form of physical coins and notes, and largely uses electronic representations of cash held at banks or on prepaid cards to make payments digitally or online.

Morgan Stanley's major report into CBDCs showed they would probably be quite different from cryptocurrencies, as they would not use a decentralized security system, or blockchain.

The European Central Bank has made similar arguments to Morgan Stanley, saying CBDCs have little to do with cryptocurrencies, which it sees as speculative assets and not actual currencies.