Taiwan pushes for central bank custody in stablecoin oversight plan

Taiwan’s central bank has urged stricter oversight of stablecoin licensing, including a recommendation for issuers to hold part of their reserves at the central bank. The institution is no longer a passive observer. As Taiwan’s legislature debates the governance of stablecoins, the central bank has called for a licensing role within the Financial Service Commission's (FSC) proposed Virtual Asset Services Act (VASA) to manage risks associated with foreign exchange and payment system regulations.

The draft act, spearheaded by the FSC, marks Taiwan’s first dedicated effort to regulate digital asset businesses. This legislation includes the issuance of stablecoins pegged to Taiwan Dollar (TWD) and U.S. Dollar (USD) and is under review by the Executive Yuan, Taiwan's highest administrative body.

Several local banks are preparing for a future with regulated stablecoins. For instance:

• O-Bank has expressed interest in launching a Taiwan dollar-pegged stablecoin.
• KGI Bank signed a memorandum in October with Tether to create token-enabled cross-border finance applications.
• Cathay United Bank is also exploring stablecoin issuance, though pending clearer regulatory guidelines.

However, within Taiwan’s crypto industry, concerns remain over the market relevance of locally issued stablecoins. “Exchanges are asking where a Taiwan-issued stablecoin product is going to fit in the market,” remarked Charlie Chen, Secretary of Taiwan’s Virtual Asset Anti-Money Laundering Association (TVA3). He noted that without a sustainable business model, safety alone is not enough.

Stablecoins have transitioned from futuristic concepts to an integral part of today’s financial system. According to an October survey, nearly 5% of Taiwanese importers and exporters now use USD stablecoins, significantly higher than the initially estimated 0.5%.

James Lee, a senior advisor at the Taiwan External Trade Development Council (TAITRA), highlighted the dominance of USD stablecoins, warning that they could reshape global finance. “In 10 to 20 years, USD stablecoins could wipe out half of national currencies and negatively impact traditional banks if they fail to adapt,” he cautioned. This trend highlights both opportunities and risks for Taiwan’s financial market.

Taiwan’s aspirations for formal regulation of stablecoins face complexities, particularly with issuers considering Taiwan dollar and USD-pegged options. James Lee advised caution, pointing out challenges such as low scalability and the 1% interest yield compared to 4% in the U.S.

He questioned the viability of new stablecoins in the face of established players like USDC and USDT with zero switching costs for users. Instead, Lee advocates building on the success of the USD stablecoin system, emphasizing its role in enhancing Taiwan's global competitiveness. He stressed, “USD stablecoins provide an edge in international trade, not just for trading with the U.S. but also within the virtual economy.”

Although the draft Virtual Asset Services Act excludes AML provisions, Taiwan’s 2024 Money Laundering Control Act has significantly tightened oversight. The act reduced the number of exchanges operating in Taiwan from 30 to 9 and mandated others to cease operations until they meet registration requirements.

Despite these efforts, cross-border crypto scams remain an escalating concern. Cyberattacks, such as the BitoPro exchange hack in May 2025, highlight vulnerabilities, with $11.5 million stolen. According to Charlie Chen, funds often move offshore, limiting regulators' ability to recover them.

Angela Ang, Head of APAC Policy at TRM Labs, noted the difficulty of preventing citizens from using offshore exchanges. However, she emphasized that improving local regulatory ecosystems could still provide meaningful safeguards.

James Lee advocated for carefully designed, intelligent regulations. He argued that stablecoins should be addressed from a national interest perspective, encompassing more than financial or trade issues. “Every country needs a unique strategy tailored to their circumstances,” he suggested.

Looking to the future, Charlie Chen from TVA3 expressed optimism that a Taiwan-dollar stablecoin could reach pilot phase within two years. He advocated for the use of public blockchains like Ethereum to maximize liquidity and global accessibility. “A stablecoin without global access would lose much of its purpose,” said Chen.