The era of the American currency is ending, says the former head of Morgan Stanley Asia, Stephen Roach. Is it worth investing in bitcoin and other cryptocurrencies and waiting for them to rise in price.

One of the scenarios for the wider spread 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 savings of the population and growth of public debt against the backdrop of the successful recovery from the crisis of the main US trading partners.

“Currencies strike a balance between the country's domestic economic base and external perceptions of its strength or weakness. In the US, this balance is changing rapidly, so 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 American currency to protect their savings during the crisis caused by the spread of Covid-19. Now the dollar is quoted 33% above the lows of 2011, according to estimates of the Bank for International Settlements (BIS). However, next year, taking into account inflation, the USD may fall by 35%, Roach said.



US partners against the dollar

According to BIS, the largest partners of the United States are China, the European Union, Mexico, Canada and Japan. The cost of the currencies of these countries determines the dollar exchange rate on international markets by 72%. This means that to weaken it, they must strengthen, which is quite possible.

“Exchange rate shifts are the result of comparing the US with Europe, China, and so on. The forecast for a 35% reduction 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 to domestic consumption, which will lead to a strengthening of the yuan, even despite the risk of a continued trade war with the United States. Given the volume of trade, the euro now looks 15% underestimated relative to its maximum in April 2008, Roach added.

Currencies of Canada and Mexico will strengthen against the backdrop of the restoration of economic activity and oil prices. There is no need to talk about the growth of the yen, but four currencies will be enough to influence the weakening of the dollar, said the former head of Morgan Stanley Asia.


There is one but

Artem Deev, Head of Analytical Department at AMarkets, questioned the likelihood that the currencies of major 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.

Germany's economy is contracting at a record pace. China during the pandemic has lost 10% of GDP and will catch up with losses within 2-3 years, Deev said. Canada and Mexico are heavily dependent on US exports, and may also decline. The second wave of the pandemic is increasingly forecasted, which means the global economy may shrink even more than now (including the indicated American partners).

“In a situation of global recession, all assets, including cryptocurrencies, may fall (as was the case between February and April of this year). Talking about investing in bitcoin as a “protective harbor” is premature, ”said Deev.


The collapse of the dollar: will it be or not

From July 1, anti-crisis payments in the United States will cease, and from October 1, financial obligations for student loans and mortgages will resume. Therefore, Roach predicts a record collapse in consumer savings by early 2021.

“During the crisis in 2008, the United States first reduced domestic savings - 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, combined with a record budget deficit of $ 26 trillion last week, will make investing in US assets risky and force investors to look for an alternative. According to Roach, the American dollar will collapse and stagflation will begin - accelerating inflation, coupled with weak economic growth.

“I have heard about the expected collapse of the dollar since 2001, but for 19 years the dollar has remained a protective asset, and the US is booming. 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 large debts, but today they speak only about the USA, ”said Vladislav Antonov, an analyst with Alpari IAC.

He advised holding funds in different currencies (euro, dollar, yen and bitcoin). Gold is a haven from inflation, so 10% of the portfolio should be precious metal, the analyst said. He added that investments 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 found their users among countries and companies that are threatened by sanctions. A new type of asset plays the role of a tool to bypass the dollar settlement system and hide the traces of transactions with sanctions structures.

“Cryptocurrencies are more dependent on trade wars and sanctions. A significant role is played by China, which accumulates most of the mining capacities. Cryptocurrencies are a tool with great risk, in the investment portfolio such tools will be more likely in the alternative investment section, and their share should not exceed 10% of the total portfolio, ”said Lushin.

The cost of cryptocurrencies will depend not so much on the fall or inflation of the dollar as on the further prospects for the development of the digital money market itself, said Roman Lavnik, candidate of economic sciences, managing partner of Lavnik and 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 demonstrate an obvious upward trend in value, which is associated with a general increase in the 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 continue, but I would not be in a hurry to expect any colossal increase in its price, ”said Lavnik.

He advised not to rush into investments in cryptocurrency, given the vagueness of its legal status and operations with it. In a crisis situation, the value and demand will grow for other, more traditional (from a legal point of view) assets, for example, gold and shares of gold miners.

“As for cryptocurrencies, since they are not state means of payment, any country can at any time limit operations with cryptocurrencies or completely prohibit them, which creates additional risks for cryptocurrency holders. As one of the directions in the framework of diversification of its investment portfolio - why not. But I would not recommend considering cryptocurrency investments 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 this has not happened. Roach’s arguments are not conclusive, as the financial crisis could affect US trading partners. However, cryptocurrencies remain a promising asset that will develop in the coming years. Therefore, experts advise keeping part of their portfolio in them.