Reported by local news outlet bnext.com on Wednesday, Face-lengthy Yang, governor from the Central Bank from the Republic of China (Taiwan), suggested a no-interest the perception of the nation’s central bank digital currency, or CBDC, pilot. In explaining the choice, Yang stated that the CBDC where interest rates are compensated on digital asset deposits may likely be a substitute for fiat New Taiwan dollar (NT$) deposits in banks. “When the banks’ available deposits decrease,” Yang described, “it might result in a corresponding rise in the price of financing and therefore increase the price of borrowing for consumers.”
Yang further cautioned that even interest-free CBDCs can lead to “digital bank runs” during occasions of monetary instability and rapidly spiral right into a liquidity crisis for banking institutions. But nonetheless, the nation’s central bank governor recognized an outburst sought after for electronic payment solutions recently:
“The number of electronic payments like a % of payments in Taiwan has risen from 40% in 2017 to 60% in Q1 2022. Therefore, there’s the potential of greater demand within the populace for any CBDC that gives a secure, reliable, no-commission, no credit risk with no liquidity risk type of digital payment solution.”
Taiwan is presently within the second stage of their CBDC pilot program, where its central bank offers the CBDC to 5 selected Taiwanese banks for distribution among consumers. In line with the pilot program results, the central bank will proceed to another steps. However, it was already identified in trials the distributed ledger technology inside the CBDC couldn’t handle high frequency, high volume consumer transactions. Another reason for problem is the lost functionality from the payment solution in case of power outages.
