China, the United States, and Central Bank Digital Currencies: How Important Is It to Be First?

Abstract

In only a few years, central bank digital currencies (CBDC) have gone from a fringe idea promoted by cryptocurrency bloggers to an idea now seriously explored by 80% of the world’s major central banks, including the People’s Bank of China and the United States Federal Reserve. This paper gives an overview of the drive at the world’s central banks to evaluate CBDCs and examines the reasons behind the world’s two leading economies’ stark divergence in central bank digital currency development. China committed much earlier to launching a CBDC, announcing its intention to do so in 2016, and it has since then taken more concrete steps towards piloting and issuing a CBDC than the Federal Reserve, which has yet to commit to ever issuing one. This article then critiques the common framing of CBDC development as a race and explores the implications of China becoming a first mover for both countries and the global monetary system, including the role of the Dollar and RMB internationally. China has already begun retail pilots and is likely to be the first major economy to issue a CBDC to the general public. The analysis hypothesizes that a first mover advantage in CBDC will to be short lived due to the rapid changes in the technology and global marketplace for digital currencies, and that the Federal Reserve may not be as far “behind” China in understanding digital currency as it might appear from their different public response to CBDC.