In light of economies becoming increasingly digitalized, with more financial innovation and decreasing use of cash, the cryptocurrency boom has become a focus of central banks around the world — and Taiwan is no exception.
At a forum in Taipei last week, central bank Governor Yang Chin-long (楊金龍) spoke about the progress in developing a central bank digital currency (CBDC). He said that the central bank conducted the first phase of a technical feasibility study in June last year, aiming to understand the limitations of the so-called distributed ledger technology behind cryptocurrencies, and especially whether the central bank is operationally efficient enough to settle large transactions in time.
Yang said that phase 2 of the study is under way, which includes building a prototype CBDC platform to simulate the application of the digital currency in retail payment systems. The certification of the digital currency is expected to be completed in September next year at the earliest.
There are three conditions that must be met before the study can enter phase 3, which would entail pilot runs at some venues, or even a full-scale rollout in phase 4, he said. The first is input, participation and support from a wide range of stakeholders, such as government agencies, users, financial and academic institutions, and technology providers. The second is that mature technology exists in terms of systems integration, operational efficiency and security resilience, Yang said. Finally, a solid legal framework would be needed, including the use of the CBDC as legal tender, as well as regulations protecting privacy while preventing money laundering and terrorism to enhance public trust in the currency, he said.
Compared with other countries, China in particular, Taiwan’s development of a digital currency comes rather late. However, Yang emphasized in his speech that there is no first-mover advantage for the technology and its development should not become a competition among countries. What matters is to ensure that the rollout meets domestic needs.
In other words, countries that issue digital currencies earlier might have certain benefits, but they would also have to deal with the currencies’ inherent risk to privacy, financial institutions and the overall economy. Latecomers could take cues from first movers’ experience, implement better risk-mitigation mechanisms and build a more comprehensive digital currency ecosystem.
In short, the central bank is researching and experimenting with the technology, and continues to explore the future of everyday transactions, including the role that a CBDC might play.
The question is no longer whether Taiwan should issue a digital currency, but when it should do so. However, there is still significant work that needs to be done concerning privacy and security concerns. The launch of a CBDC needs to be carefully designed and give the financial system time to adjust and provide safeguards. Therefore no decision has yet been made on whether a digital New Taiwan dollar will be introduced.
Certainly, there are some developments that motivate the central bank to push the project forward, such as the digitalization trend and financial innovation, which would in turn influence the popularity of the digital currency, as well as its usefulness and how widely businesses would accept it.
Particularly important is that the currency would have to have advantages over existing digital payment services, specifically in terms of usability and security. Otherwise, it would just be one more option for digital payments. Moreover, it is vital that the central bank continues testing the technology, so that whenever public consultations and policy discussions reach a conclusive result, Taiwan can launch a CBDC that people can use as a cash substitute without a second thought.
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