First mover advantage for a CBDC

The race to launch CBDCs

In this commentary Barry Eichengreen argues that there are two main reasons countries are rushing to launch CBDCs: a) to address the issue of the unbanked, since a CBDC will give digital access to payments technology to anyone with a cellphone or smartcard; and b) to diminish the dependence on the dollar as the dominant vehicle for cross-border payments, given recourse by the United States to financial sanctions. In addition, there is the belief that there is a first mover advantage both in terms of geopolitical and financial primacy.

But this argument assumes that CBDCs will be used across borders and that they will supplant the international interbank market as the vehicle for international transactions. But, given the political obstacles impeding a common trading platform for different CBDCs, this is unlikely to be the case.

The Trilemma of Central Bank Digital Currencies
By: Barry Eichengreen – University of California, Berkeley

Is there a first mover advantage for a CBDC?

In this paper Isaacson et al. look at the first-mover advantage for both the asset component of reserve currency and a future financial system built on CBDCs. They categorize the advantages and disadvantages of first movers in three buckets: technology, resourcing, and customer preferences and the table below highlights some of the considerations:

As for geopolitical and financial primacy, the authors look at two potential advantages:

• Reserve Currency as an Asset: “Since transactions are already digital, it seems unlikely that altering the technical features of a jurisdiction’s payment system will materially impact key reserve currency-determining elements.22 Without a very large geopolitical event, these elements take time to change and do not appear to be related to first mover activity.”
• An Economic Platform Built on CBDCs: “Moreover, the introduction of a new economic platform may require an indispensable function or feature (or more colloquially, a “killer app”) for adoption, much like the widespread internet use depended on the development of the web. The history of the Internet suggests that the commercialization of CBDC-related products and services using nonproprietary protocols may be essential for growth, probably more so than being first to establish the platform.”

An Examination of First-Mover Advantage for a CBDC
Authors: Ken Isaacson, Jesse Leigh Maniff, Paul Wong
From: Federal Reserve Board