Map with flag of Taiwan

Taiwan’s central bank outlines conditions for second stage of CBDC development

Taiwan, officially the Republic of China (ROC), has been seriously exploring the possibility of launching a central bank digital currency (CBDC). According to the country’s central bank governor, Yang Chin-long, Taiwan is now ready to enter the second stage of its CBDC study.

In this second stage, the central bank’s efforts will be directed toward working on existing problems of the CBDC Chin-long shared while speaking at a forum on digital currencies, as reported by Bnext, a local news outlet.

Some of these considerations are that the CBDC should not be interest-bearing. The governor maintained that Taiwan’s CBDC would be similar to others that have been released so far in this respect.

“Neither of the current CBDCs in circulation, such as the Sand Dollar and the digital yuan, accrue interest on deposits,” Chin-long said.

The governor explained that a non-interest-bearing CBDC is desirable to prevent the reduction of deposits of fiat, while an interest-bearing CBDC replacing fiat deposits could cause bank runs to be more brutal and quickly spiral into a liquidity crisis in case of a market collapse.

Chin-long adds that Taiwan’s CBDC will also need to be able to work at all times, even without the internet, and at greater transaction speeds. The current CBDC platform cannot meet the requirements of high frequency, large-scale and instant settlement of transactions.

The bank is exploring how to scale the system’s operational performance, as well as the feasibility of offline payment options to boost the resilience of the system, Chin-long revealed.

While speaking to Reuters, Chin-long conceded that ironing out these issues “will take a long time, at least two years, and then we’ll have to evaluate it again.” However, he acknowledges that the demand for digital payment methods is on the rise in the country.

CBDC development in Asia

Taiwan started working on its CBDC in 2019. It has been conducting extensive tests of the platform with banks and plans to onboard the public gradually from September, according to a report by PYMTs back in February.

Similar to Taiwan, other Asian countries are also at various stages of exploring CBDC. Taiwan’s neighbor China is one of the global leaders in CBDC testing. China has been expanding its CBDC pilot rollout to more cities and for more use cases.

Meanwhile, when Taiwan started the CBDC project, the country also proposed digital assets regulations to oversee ICOs and security token offerings (STOs).

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

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