Taiwan has confirmed plans to launch a central bank digital currency (CBDC) with a pilot expected soon.
Central bank governor Yang Chin-long said that while a centralized digital currency is under development, an exact timeline for its public rollout is still unclear.
BoT’s target for CBDC testing
Taiwan’s central bank has been researching the use cases of both a retail and wholesale CBDC for around two years. According to Atlantic Council Research, the Bank of Taiwan (BoT) was aiming to conclude the technical testing of its CBDC prototype by Sept.
While the country looks at the future potential of digital payments, BoT already wound up its feasibility study back in June 2020, as per the report.
Their research note state, “Following that study, the Bank noted that the focus of bankers exploring CBDCs has shifted from wholesale to retail applications in many countries and that it plans to approach CBDC research in phases: starting with a retail CBDC, and moving on to a wholesale CBDC.”
Meanwhile, Yang believes that the banking regulator has to overcome a few hurdles before a wider launch for payments.
Firstly, establishing communication to gain the support of the public.
Secondly, refining the platform design and adopting more stable and mature technologies. And lastly, placing a solid legal framework and formulating legal norms, Yang outlined.
The official said: “This will take a long time, at least two years, and then we’ll have to evaluate it again.”
Taiwanese want cash over plastic money
The agency chief acknowledged that the Taiwanese population is accustomed to using cash, despite the development of credit and debit cards. “We still have to push forward. After all, most of the young people in the future will use mobile phones, so we have to think about the next generation,” he noted.
The banking chief also said, according to a Reuters report, that the trial of the retail payment scenario has now been completed three months ahead of schedule.
“The experiment of general-purpose CBDC focuses on retail scenarios that are close to people’s daily life,” the governor added.
Why are smaller countries rushing CBDC launches?
Markus Brunnermeier, Princeton Professor and adviser to the BIS and Bundesbank was recently quoted saying in an ECB forum that smaller countries are worried that the digital era will accelerate “dollarization.”
Brunnermeier said: “That’s why they’re at the forefront of introducing CBDCs in order to defend their currencies from the foreign currencies taking over.”
But he does not expect the U.S. to be at the forefront of CBDC development. The Princeton professor sees the U.S. dollar, the euro, and China’s renminbi becoming dominant globally.
U.S. Federal Reserve Chair Jerome Powell said before the U.S. House Committee on Financial Services that Congress will seek guidance from the Federal Reserve on CBDC implementation.
Powell said: “I think it’s something we really need to explore as a country. Our plan is to work on both the policy side and the technological side in coming years and come to Congress with a recommendation at some point.”
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