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Cryptocurrencies are posting a strong year with market cap leader Bitcoin so far up more than 70 percent against the dollar. Although Bitcoin and other cryptocurrency exchanges have effectively been banned since 2017 in China, trading between existing holders continues in a country that made up over 90 percent of global volumes before the ban.

There is increasingly greater bullishness from top investors, indicating that near-term demand is not fuelled by speculation alone. Billionaire Twitter CEO Jack Dorsey recently revealed that he had bought $50 million of Bitcoin. A filing with the U.S. Securities and Exchange Commission last quarter unveiled another 20 institutional investors of Bitcoin via New York-based Grayscale Investments. 

The digital yuan, alongside other CBDCs, could increasingly face competition not only from domestic payment infrastructure but the cryptocurrency ecosystem. In addition, the PBoC has said that that the digital yuan will not rely on the distributed ledger technology from blockchains which could further turn away users attracted by decentralization.

5. Central Banks

In the near term, maybe the least threatening factor in the PBoC’s CBDC race is their natural rival: other central banks. Although «80 percent of central banks around the world are exploring the idea» of a sovereign digital currency, according to Fed Chair Jerome Powell, speed is no advantage in western democracies that need to seek consensus with China poised to retain the first-mover advantage.

But there is a saying that «you can recognize a pioneer by the arrows in his back» and China’s race to be first could either be a success or a case study for competitors to learn not to repeat. 

«It’s more important for the United States to get it right than to be first,” Powell said in a recent cross-border payment panel hosted by IMF.  «[W]e are committed to carefully and thoughtfully evaluating the potential costs and benefits of a central bank digital currency for the U.S. economy and payments system. We have not made a decision to issue a CBDC.»