Taiwan

Taiwan central bank completes wholesale CBDC study, plans next steps

A central bank official spoke about ongoing CBDC research and other payment modernization initiatives Taiwan is exploring.

Taiwan’s central bank has completed a feasibility study of wholesale central bank digital currency (CBDC) and is continuing to consider its introduction. The central bank is seeking feedback from businesses and academics and will continue to work on platform design, Deputy Governor Mei-lie Chu said on Dec. 7.

In a lengthy speech at an event for bankers, Chu outlined what she called Banking 4.0, or “services embedded in customers’ daily lives,” including the integration of artificial intelligence and advanced mobile and digital technology into banking. She devoted about half of her presentation to CBDC.

Chu referred to Bank for International Settlements research and said she saw the advantages of CBDCs and tokenization of real-world assets. Furthermore:

Taiwan will review global trends before deciding on crypto ETFs

The Financial Supervisory Commission considers itself to be “in the exploratory phase” for crypto exchange-traded funds.

Taiwan’s principal financial regulator, the Financial Supervisory Commission (FSC), is considering allowing crypto exchange-traded funds (ETFs) in the country, but only after analyzing the product’s development in other markets worldwide.

According to a Dec. 5 report in the Taiwanese newspaper, the Commercial Times, the FSC is closely watching developments in the United States, where the Securities and Exchange Commission will review spot Bitcoin (BTC) ETFs in January.

The FSC also reportedly acknowledged the launch of numerous cryptocurrency futures commodities listed on the Toronto Stock Exchange, the New York Stock Exchange, the Nasdaq Exchange, the Chicago Board Options Exchange and the Hong Kong Stock Exchange, among others.

The FSC intends to gradually liberalize the rules for digital asset trading, but it should rely on “self-discipline and regulation.” According to the report, Taiwanese regulators have repeatedly blocked crypto ETF initiatives by local investment banks in recent years due to the high volatility of cryptocurrencies.

Cointelegraph reached out to the Financial Supervisory Commission for further information.

Crypto regulatory developments have recently accelerated in Taiwan.

Taiwan watchdog FSC to assume authority on crypto regulation

Taiwanese lawmakers reportedly expect to finalize a crypto regulatory framework by the end of March or April at the earliest.

The Financial Supervisory Commission of Taiwan (FSC) will become the primary regulator of cryptocurrencies in the island country, according to the head of the authority.

FSC chairman Huang Tien-mu has announced that the regulator will assume supervisory authority over the crypto industry in Taiwan, the local United Daily News reported.

Huang addressed Taiwan’s parliament, the Legislative Yuan, on March 20 regarding the regulation of cryptocurrencies in the Republic of China (ROC). He pointed out that the FSC’s upcoming crypto regulatory framework will include major rules and policies, including the separation of customer assets from company funds and investor protection practices.

The official specified that the FSC is currently instructed by the nation’s highest administrative body — the Executive Yuan — to supervise payments and transactions in the crypto market. Huang stressed that other industry-related assets, like nonfungible tokens (NFTs), may not fall under FSC’s supervision.

*FSC chairman Huang Tien-mu. Source: United Daily News*

Huang also noted that the FSC would initially pay special attention to self-regulation principles in the cryptocurrency industry in Taiwan. The official added that the authority would follow the instructions of the Executive Yuan.

According to a report by Taiwan’s Central News Agency, Taiwanese lawmakers expect to develop and approve a relevant crypto regulatory framework by the end of March or April at the earliest. The current preliminary plan reportedly aims to put the regulation of NFTs under the supervision of the Ministry of Digital Affairs.

The news comes amid Taiwan facing ongoing tensions with China, with the Chinese government considering Taiwan as a breakaway province, which it vowed to place under its control. Unlike some crypto-friendly jurisdictions in the Asia-Pacific region, such as Hong Kong or Singapore, China has emerged as a major anti-crypto country, placing a blanket ban on crypto in 2021.

Web3 helps Taiwan secure information against cyberattacks

In an effort against Chinese cyberattacks, Taiwan employs Web3 technology for decentralized file sharing post-Pelosi visit.

The Taiwanese Ministry of Digital Affairs (MODA) plans to implement decentralized technology into its web portal in an effort against cyberattacks. InterPlanetary File System (IPFS) is a Web3 technology that government officials will employ for decentralized file sharing.

IPFS identifies content through file hashes, which allows files stored by multiple parties to be found anywhere and can be accessed by simple HTTP.

This development comes after the controversial visit of United States House Speaker Nancy Pelosi to Taiwan, despite warnings from mainland China.

Since the visit, government websites have faced multiple attacks sourced from the mainland. This includes a distributed denial-of-service (DDoS) attack rendering the sites inaccessible.

Pelosi’s visit to Taiwan not only rocked the boat geopolitically speaking but also made waves in the crypto market. Bitcoin rose to its daily resistance of $23,500 on Aug. 3, the following day.

However, the new MODA site is getting a makeover through the implementation of Web3 technology and currently has files and the original site index available on IPFS.

Taiwan’s Digital Minister Audrey Tang told official state media that until now, the MODA site has not been attacked since it debuted on the same day the Chinese military began its drills.

Tang said the site uses a combination of Web3 and Web2 tools.

“It uses a Web3 structure, which is tied to the global blockchain community and the global Web2 backbone network. So if it can be taken down, everything from Ethereum to NFTs will be taken down, which is unlikely.”

According to officials in Taipei, Taiwan saw nearly 5 million daily cyberattacks or at least scans for system vulnerabilities last year.

The implementation of Web3 technology is a positive step toward emerging technology implementation. Though Tang did highlight the risks of other Web3 assets like crypto in activities such as money laundering.

Taiwan’s relationship with crypto ebbs and flows. Recently, the country indirectly banned buying cryptocurrencies with credit cards after the chief financial regulator compared cryptocurrencies to online gambling.

Nonetheless, the country, like many others around the world, is piloting its own central bank digital currency (CBDC). Currently, it’s distributing its digital currency to five Taiwanese banks for distribution.

Buying crypto with credit cards is now indirectly banned in Taiwan

In its note to banking sector, a chief financial regulator likens virtual assets to online gambling.

Taiwan’s Financial Supervisory Commission (FSC), a chief financial regulator, issued a note to the banking industry, indicating that they should not grant the virtual assets providers (VASPs) the status of merchant in operations with credit card holders. That means a de-facto ban on buying crypto with a credit card on the island.

As the local media reported on Thursday, July 21, the Financial Supervisory Commission sent a letter to the Association of Banks in early July, reminding the members of the Association of Banks that virtual assets are highly speculative and risky, and the cash flow is complex and challenging to monitor transactions effectively.

The regulator has also specified that credit cards are essentially consumer payment tools, not investment and wealth management or payment tools with high speculative, high risk and high financial leverage transactions. It referred to the longstanding tradition of preserving credit card holders from paying for online gambling, stocks, futures and options, among other things.

The FSC requires banks to adjust to the new guidelines within three months. After that, the audit unit must review its internal compliance and report the results to the regulator.

It is not the first time FSC has taken action or voiced its skepticism about crypto. Last year, the regulator issued several press releases to remind the public of related risks associated with virtual assets.

In July 2021, Taiwan enacted the renewed Anti-Money Laundering (AML) requirements for cryptocurrency exchanges, based on the Financial Action Task Force’s recommendation.

At the end of June, the governor of the Central Bank of the Republic of China (Taiwan) recommended a no-interest design for the country’s central bank digital currency (CBDC) pilot. Taiwan is currently in the second stage of its CBDC pilot program, where its central bank provides the CBDC to five selected Taiwanese banks for distribution among consumers.

Taiwan central bank governor considers interest-free CBDC design to prevent fiat deposit flight

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

As reported by local news outlet bnext.com on Wednesday, Chin-long Yang, governor of the Central Bank of the Republic of China (Taiwan), recommended a no-interest design for the country’s central bank digital currency, or CBDC, pilot. In explaining the decision, Yang said that a CBDC where interest is paid on digital asset deposits would likely become a replacement for fiat New Taiwan dollar (NT$) deposits in banks. “Once the banks’ available deposits decrease,” Yang explained, “it would lead to a corresponding increase in the cost of financing and thereby increase the cost of borrowing for consumers.”

Yang further warned that even interest-free CBDCs could lead to “digital bank runs” during times of financial instability and quickly spiral into a liquidity crisis for financial institutions. But nevertheless, the country’s central bank governor recognized a surge in demand for electronic payment solutions in recent years:

“The ratio of electronic payments as a % of all payments in Taiwan has risen from 40% in 2017 to 60% in Q1 2022. Therefore, there is the possibility of greater demand in the populace for a CBDC that provides a safe, trusted, no-commission, no credit risk and no liquidity risk form of digital payment solution.”

Taiwan is currently in the second stage of its CBDC pilot program, where its central bank provides the CBDC to five selected Taiwanese banks for distribution among consumers. Based on the pilot program results, the central bank will proceed to the next steps. However, it has already been identified in trials that the distributed ledger technology within the CBDC could not handle high frequency, high volume consumer transactions. Another point of concern is the lost functionality of the payment solution in the event of power outages.