The number of virtual asset investors in Taiwan has doubled! Central Bank: New Taiwan Dollar stablecoin may become a hotbed for Money Laundering.

On September 18, Taiwan's Central Bank held its 3rd Quarterly Supervisory Board meeting, releasing a special report on the recently popular stablecoin issue. It revealed that the proportion of virtual asset investors in Taiwan has significantly increased from 12% last year to 24% this year, doubling in growth. At the same time, the Central Bank also issued a warning, pointing out that if stablecoins lack proper regulation, they may become tools for Money Laundering and fraud, and noted that the incentive for the development of New Taiwan Dollar stablecoins in the Taiwanese market is relatively low.

The investment boom in virtual assets in Taiwan continues to heat up, with the number of investors doubling.

According to the latest survey by Fidelity International, the proportion of virtual asset investors in Taiwan has significantly increased from 12% last year to 24% this year, achieving a doubling growth. It is even more noteworthy that 51% of the current holders expect to further increase their holdings of virtual assets within the next year, indicating that market enthusiasm continues to rise.

However, according to Chainalysis estimates, from June 2023 to June 2024, the value of virtual assets traded in Taiwan is approximately 55 billion USD, which is about 2.12% of the global virtual market value of approximately 2.6 trillion USD at that time, indicating that Taiwan's share in the global virtual asset market remains limited.

Central Bank Warning: Stablecoins May Become a Hotbed for Illegal Activities

The Central Bank report indicates that stablecoins have payment functions, and if they lack proper regulation, they not only harm consumer protection but may also affect the sound operation of the payment and financial systems. In addition, with rampant illegal activities such as fraud and Money Laundering in the virtual market, stablecoins could become tools for Money Laundering and fraud.

Regarding regulatory directions, the Central Bank stated that it will adopt the EU's approach by placing the regulations related to stablecoins within the virtual asset special law, rather than establishing a special law for stablecoins like the United States. The Central Bank will work with the Financial Supervisory Commission to jointly formulate relevant subsidiary laws to ensure healthy market development.

New Taiwan Dollar stablecoin: Similar nature to electronic payments but with lower incentives

The Central Bank report analysis indicates that the issuance of stablecoins involves raising funds from the unspecified public, similar to the practice of electronic payment where stored value comes from funds deposited by different specific groups (users), and both are used for payment purposes. Stablecoins are issued using technologies such as blockchain, and their nature is similar to electronic payment tokens like Taiwan's EasyCard and iPASS; the difference being that stablecoins can be traded in virtual markets, while electronic payments do not yet have this functionality.

Regarding the regulatory requirements for the New Taiwan Dollar stablecoin, the Central Bank stated:

· TWD stablecoin must be subject to the current 100% trust guarantee of electronic payments.

· A portion of the assets must be held as reserves deposited with the Central Bank.

· The remaining part can refer to overseas practices, used for deposits or purchasing high-quality, highly liquid financial assets.

The impact of the New Taiwan Dollar stablecoin on Taiwan's payment system is limited

The Central Bank analysis believes that currently, there are not many virtual assets priced in New Taiwan Dollars in the virtual market, and the demand for New Taiwan Dollar stablecoins is not high. Moreover, Taiwan's payment system is quite complete, with various payment tools such as credit cards, financial cards, bank deposits, and electronic payments already in place. Therefore, the impact of New Taiwan Dollar stablecoins as a payment tool on Taiwan's payment system should be limited.

The Central Bank report indicates that the New Taiwan Dollar stablecoin is linked to the value of the New Taiwan Dollar (fiat currency). The public must deposit the New Taiwan Dollar (fiat currency) through financial institutions to exchange it for the New Taiwan Dollar stablecoin, which can then be used as a medium of exchange in the virtual market. Conversely, the New Taiwan Dollar stablecoin can also be redeemed back into the New Taiwan Dollar (fiat currency) and deposited into a financial institution's deposit account. This 1:1 exchange and redemption mechanism between the New Taiwan Dollar stablecoin and the New Taiwan Dollar (fiat currency) can connect the financial system with the operation of the virtual market.

Stablecoins have little impact on monetary policy

The central bank report pointed out the potential impact of stablecoins on monetary policy:

· The issuance of the New Taiwan Dollar stablecoin should only result in a redistribution of market funds, with little impact on Taiwan's broad money supply (M2) and bank credit creation.

· After the public purchases the New Taiwan Dollar stablecoin, the issuer will use the funds collected to purchase reserve assets, and the funds will continue to circulate within the monetary system, with M2 roughly remaining unchanged.

· The New Taiwan Dollar stablecoin does not earn interest, and the New Taiwan Dollar is not an international currency, so the incentive for the public to hold New Taiwan Dollar stablecoins is relatively low, which has a limited impact on the credit creation of the Taiwanese banking system.

The Central Bank of Taiwan emphasized that even with the development of stablecoins, the Central Bank can still adjust overall NTD liquidity through policy interest rate adjustments and open market operations. Therefore, the issuance of NTD stablecoins should not interfere with Taiwan's monetary policy transmission mechanism.