08:26 AM EDT, 04/19/2024 (MT Newswires) -- Strategists at Morgan Stanley said Thursday that the US dollar's future pre-eminence as a global reserve asset is assured by a lack of any credible challengers to its dominance.

As the dollar's hegemonic role in foreign exchange is a frequent subject of market discussion, Morgan Stanley's new report dismisses the euro, renminbi and others as prospective challengers for their lack of credibility in several key areas.

"The rise and fall of the British pound (GBP) shows us that dominant currency status is neither a foregone conclusion nor permanent. Yet, history shows that the dominant currency only loses its status once a sufficiently attractive challenger appears," the strategists said in a Thursday research briefing.

They said that the lack of alternatives makes it less likely that market participants will move out of the dollar. That means that the greenback's value will likely be driven by more traditional factors around the US business cycle.

Concerns over US fiscal health and Washington's trigger happy use of financial sanctions are just some of the reasons for frequent speculation about a possible erosion of the dollar's preeminent position in global markets. The G7's freezing of Russian central bank reserves following the invasion of Ukraine also led to much speculation about a 'de-dollarization' of the international financial system.

"The most discussed competitor is China, and we do expect a modestly more global role for CNY (primarily via bilateral trade). But we think that China's '3D challenge' of debt, deflation and demographics will limit CNY's international appeal. FX reserves in CNY should rise to only 5% in 2030 from 2.3% now, with support we find in trade invoicing," Morgan Stanley strategists said.

While China's renminbi is often viewed as the chief challenger of the dollar, Europe's single currency was also recently viewed as a contender for the greenback's crown. However, the financial fragmentation seen during the Euro Area debt crisis laid bare the deficiencies of the currency bloc and local policymakers have lacked appetite for the necessary financial integration since.