The Governor of the Central Bank of the Republic of China (Taiwan), Yang Chin-long, has said that central bank digital currency (CBDC) is not a race or an international competition, and the central bank has no issuance timetable for its digital New Taiwan dollar.
Yang also stated that being the first to introduce a CBDC does not guarantee success, as countries that have already issued or tested CBDCs have not all seen the desired outcome, according to a July 7 report by local publication UDN.
Yang outlined the central bank’s plans for the digital New Taiwan dollar, dampening expectations around the pace of Taiwan’s CBDC development. Specifically, in a report released before his presentation to the Finance Committee of the Legislative on June 10, Yang explained that the central bank would be conducting experiments on how a wholesale CBDC (wCBDC) could work in three specific scenarios.
Proof-of-concept plan
Firstly, the wCBDC will be used to settle interbank transactions for tokenized deposits. When a payee transfers a tokenized deposit to a recipient, the recipient might receive the money instantly, but the payee’s bank must also transfer money to the recipient’s bank. Yang said the central bank is exploring the benefits a wCBDC can provide at this point.
Secondly, the central bank is planning trials for the settlement of tokenized asset transactions; and thirdly, it plans to trial purpose-bound money (PBM), an iteration of digital currency that expands upon the principles of programmable payments.
PBM is a Singaporean innovation that enables money to be directed towards a specific purpose without requiring the money itself to be programmed, instead, it outlines the specific conditions under which its underlying digital currency can be utilized.
The use case the Taiwan central bank is exploring is for companies bidding for government contracts. Using PBM, unsuccessful bidders will have their deposit tokens redeemed, while the successful bidder will have their tokens automatically converted to a performance bond.
This latest testing phase may take time, but Yang revealed that the ongoing process has already been helping improve the efficiency of Taiwan’s payment system.
He noted one significant development: the CBDC prototype platform developed for retail payments can already support the cash flow operation of digital coupons, and the number of transactions per second (TPS) has been increased to 20,000.
So, despite Yang’s protestations that CBDC development is not a race, it does seem Taiwan is steadily catching up with regional leaders China and Hong Kong.
Taiwan’s CBDC project
Taiwan started working on its CBDC in 2019; by February 2022, it had begun conducting extensive platform tests with banks and outlining plans to gradually onboard the public.
A few months later, in July, it began more seriously exploring the possibility of launching a CBDC, with the central bank governor, Yang, announcing it was ready to enter the second stage of its CBDC study. Phase two aimed to work on existing problems of the CBDC.
At the time, Yang suggested that a non-interest-bearing CBDC would be desirable to prevent the reduction of fiat deposits, as an interest-bearing CBDC replacing fiat deposits could cause more brutal bank runs and quickly spiral into a liquidity crisis in case of a market collapse.
Yang also said that Taiwan’s CBDC would need to be able to work at all times, even without the internet, and at greater transaction speeds—the current platform cannot meet the requirements of high-frequency, large-scale, and instant settlement of transactions.
As such, the central bank wanted to explore how to scale the system’s operational performance, as well as the feasibility of offline payment options.
In December of last year central bank deputy governor, Chu Mei-lie, announced that the central bank had completed a Proof-of-Concept (PoC) for its CBDC after the completion of a CBDC study to explore the possibilities of introducing the digital Taiwan New Dollar.
Chu disclosed that the feasibility study had focused on wholesale CBDCs—exploring the use of blockchain technology for interbank transfers—and had yielded positive outcomes, including the prospects of streamlining payment systems, improving security, reducing settlement costs, and saving time.
As of Governor Yang’s latest update, the wCBDC proof-of-concept is moving to its next testing phase, focusing on the three scenarios outlined. This will bring Taiwan one step closer to the digital New Taiwan dollar.
Watch: CBDCs are more than just digital money
