Taiwan central bank completes feasibility study on wCBDC

Taiwan’s central bank has completed a technical feasibility study of a wholesale central bank digital currency (wCBDC), deputy governor Mei-lie Chu said on December 7.

The Central Bank of the Republic of China (Taiwan) is currently seeking feedback from government departments, businesses, academics and the public about issues relating to CBDCs, Chu said at an event for bankers. 

In her speech, titled “The Evolution and Future of Monetary Payments”, Chu said CBDCs and tokenised digital assets could be key to driving future innovation in the payments systems. 

Chu said the central bank will also continue to improve the design of the CBDC platform, such as increasing its transaction volume, developing new use cases and possibly enabling offline payments. The central bank will also continue to exchange knowledge and experience with international organisations like the Bank of International Settlements and Swift, Chu added.

The Taiwanese central bank has been considering both a wholesale and a retail CBDC. Last year, it completed trials on a retail CBDC prototype in a test environment involving five commercial banks.

The central bank is prudently assessing whether to introduce a CBDC, Chu said. If the central bank were to issue a retail CBDC in future, it should avoid diverting deposits from banks, and coexist and be interoperable with other payment instruments, she added. 

Asset tokenisation could promote financial inclusion and encourage smaller investments by splitting traditional assets such as stocks, bonds and real estate into smaller units for sale, she said. It could also allow financial players to build programmable financial products using different smart contracts. 

But Chu also warned that asset tokenisation could create risks, such as excessive leverage and ownership issues. She added financial regulators should carefully balance innovation and risk management to prevent creating significant risks for consumers and the financial system. 

Chu said CBDCs could form the “foundation of trust” for the monetary system in future. She pointed to the idea of a “unified ledger” proposed by the BIS, which could combine central bank digital currencies and tokenised assets on one platform.

The deputy governor also downplayed the role of private cryptocurrency like bitcoin and stablecoins in the future of monetary system. She said the volatility of the price of bitcoin and the low transaction speed of its underlying blockchain technology have undermined its use as a digital currency. The collapse of stablecoin terraUSD and its sister currency luna in 2022 has also cast doubt on the stability of stablecoins, she added.