Over the past year, stablecoins have moved from a fringe innovation into the realm of sovereign strategy. The US has accelerated stablecoin legislation, the EU’s MiCA framework has come into force, Hong Kong has finalized its licensing regime, and Japan launched proof-of-concept trials in the securities market. While many still view them as an extension of the crypto market, in fact, competition has already escalated into a contest over financial infrastructure sovereignty.

Much of the current debate about market demand for a New Taiwan dollar (NTD) stablecoin focuses on retail and cross-border payments, but these more visible facets overlook the more critical issue of settlement sovereignty. Regulators often question the need for stablecoins given Taiwan’s already convenient payment systems, such as TWQR and mobile wallets, but this perspective is confined to the retail payment layer. Stablecoins are not designed to improve how you pay for coffee, but rather to enable asset transfers across time zones through the back-end clearing and settlement layer.

If we frame the issue merely as whether Taiwan needs a crypto industry, the scope is too narrow. The real question is whether can Taiwan afford to be absent as global financial settlement increasingly moves on-chain.

At its core, a stablecoin is an on-chain asset backed by fiat reserves to maintain price stability – but this definition somewhat understates its significance. Stablecoins are the first instruments to bring sovereign currency onto an open ledger. They can interact with AI agents in automated settlement systems, enabling fiat currency to operate in a borderless, programmable 24/7 financial environment.

Over the past few years, USD-denominated stablecoins have become the dominant on-chain settlement medium – which is due not to their superior technology, but the credibility and liquidity of the dollar. When an overseas settlement system achieves network effects, the absence of a local currency system does not just result in lost transaction volume, but a loss of settlement sovereignty. Failing to develop an NTD stablecoin would mean that on-chain financial activity is settled in USD. This is not merely a matter of convenience for Taiwan, but a question of financial influence and monetary voice.

Cross-border payment efficiency is a key variable in global supply chain competitiveness. Some Taiwanese businesses operating overseas have begun using stablecoins for trade settlement to reduce transfer times, lower costs, and eliminate intermediaries. If Taiwan can provide a compliant NTD stablecoin, such businesses will gain an additional payment option; otherwise, they will naturally default to USD stablecoins. Capital responds to the most efficient tools, not rhetoric.

Major Asian financial markets have already begun to act. In February, Nomura Holdings and Daiwa Securities Group, together with three Japanese megabanks, launched a proof-of-concept for securities trading based on yen-denominated stablecoins, filed with Japan’s Financial Services Agency. MUFG, SMBC, and Mizuho aim to enable 24/7 real-time securities settlement on the chain, moving toward commercialization. Progmat Inc., the platform they jointly established, also announced plans to migrate security tokens from private chains to the public Avalanche blockchain, aligning with the global ledger infrastructure. By integrating yen stablecoins into capital markets and public blockchains, Japan is positioning itself in the competition for global settlement currencies, rather than leaving that role solely to the US.

A common refrain in the crypto community has been that the future of money lies not just on central bank balance sheets, but within settlement systems. When settlement systems move on-chain, currencies not present there risk being excluded. Over the past decade, the Taiwanese equity market has risen to global prominence, driven by the growth of semiconductors and AI. From foundry services and AI servers to high-performance computing and advanced packaging, Taiwan now sits at the core of the global technology supply chain. Taiwan now ranks seventh in the world by stock market capitalization and trading volume, surpassing Germany and France.

No longer just a regional economy, Taiwan has become a key node in global capital allocation. How will international capital respond, however, if it maintains the traditional T+2 framework, or relies on deposit tokens, while global securities markets migrate to 24/7 stablecoin-based settlement, and a significant portion of trading becomes programmable and executable by AI agents?

If global investors trade Taiwanese assets on-chain but must settle in USD, settlement dominance will naturally shift away from the NTD. The absence of on-chain NTD settlement would represent a structural loss in national competitiveness – especially when comparable economies like Japan and South Korea are advancing their own local-currency coins.

Risks of stablecoins such as liquidity pressures, runs, impacts on bank deposits, and monetary policy transmission complexity require careful mechanism design, but are not reasons for inaction. With full-reserve backing in highly liquid assets, strict disclosure requirements, qualified issuers, and phased implementation, such risks can be managed. The real challenge is not in feasibility, but in policy determination.

Concerns from the banking sector also deserve attention. If stablecoins are issued and held in custody by banks or banking consortia, reserve funds remain within the financial system. In essence, they can be viewed as programmable deposit instruments extended onto public ledgers. Far from coming under threat of disintermediation, therefore, banks can play an even more central role in on-chain settlement, becoming trust anchors in the digital ledger era. Japan’s ongoing initiative demonstrates that stablecoins are not about eliminating intermediaries, but about reconfiguring trust.

In a hybrid monetary system where fiat currency, central bank digital currencies (CBDCs), and stablecoins all exist in competition, the role of the domestic currency in on-chain settlement will be critical in determining future financial sovereignty and market competitiveness. The key question for Taiwan will be whether to treat stablecoins as just a niche issue confined to the crypto sector, or as a part of the financial infrastructure for the AI era.

The author is a co-founder of TokenBacon Taiwan Co., Ltd.