The Taiwan Banker

It would be fair to call Central Bank Digital Currencies (CBDCs) an upgraded version of central bank-issued fiat currencies. The latter comes in many forms. Cash and deposits by commercial banks at the central bank are all backed by the state and are legal tender, which means that debtors may not refuse their use for payments. In addition to its payment transaction function, money is also the final settlement asset for financial transactions. All parties to digital payments are also backed by the central bank, which is responsible for the security of the payment system, disregarding credit rating or functional positioning. Such a policy-oriented functional currency is very different from private payment tools with trading value, and the two have a complementary, rather than competitive relationship. In recent years, new forms of digital currencies have been growing at an astonishing rate. As mentioned in the report A Retail Central Bank Digital Currency published by the Monetary Authority of Singapore (MAS), which is currently developing a CBDC, private digital currencies have high liquidity and a wide range of application scenarios. They have the potential to not only weaken the local legal currency market and limit the space for monetary policy, but also endanger economic and financial stability. Consequently, the value of a CBDC can be viewed from two perspectives: defense and development. From a defense perspective, CBDCs are an offensive strategy for governments in response to the rise of digital currencies. From a development perspective, they are at the hub of the financial payment system. The digitization of central bank currencies will change everything about the payment system, from processes and security to regulation. Taiwan’s central bank has a preliminary plan for a CBDCs. The general-purpose CBDC (i.e. the digital New Taiwan dollar) is based on a centralized ledger, provided to individuals and businesses through intermediaries. The decentralized wholesale CBDC is mainly used as an asset to clear fund transfers between financial institutions. The full system will support settlement and clearance of various tokenized asset transactions together with commercial bank deposit tokens. Ultimately, the central bank hopes that the CBDC will connect tokens with the traditional economy, establishing a resilient foundation for the digital asset market. A platform for issuance and transactions is the central bank’s short- to medium-term focus. The digital New Taiwan dollar is a highly complex social project that will not only concern the rights and interests of the public, but also the overall financial industry development and the market landscape. To this end, the central bank launched a listening tour in April 2025, conducting public hearings and other forms of dialogue with different sectors on the architecture and design of the platform. It quickly became obvious that the government, banks, electronic payment operators, merchants, and general consumers each have their own positions and considerations. The government expects the digital New Taiwan dollar to play the role of digital cash and to achieve popularization, convenience, and safety. The financial industry is concerned about the impact on deposits and asset liquidity, as well as the responsibilities and obligations that participating institutions must bear, while tech players are concerned about new competitive pressures on the existing digital payment market. Merchants focus on the cost of use and related policy incentives, while the general public expects the scheme to become a convenient and secure payment service channel. Topics like fraud, data use, and privacy rights were all hotly debated. Since the digital New Taiwan Dollar is positioned as digital cash, it must be anonymous to a certain extent. However, the anonymity and digital features of currency may make wallets a convenient channel for illegal capital flows if they fall into the hands of unscrupulous actors, necessitating a balance between privacy rights and regulation. The central bank is currently planning to provide dual-track digital New Taiwan Dollar services to maintain both privacy rights and information security, i.e. registered/anonymous wallets, while de-identifying cross-border transactions. This also accords with the spirit of “controllable anonymity,” as advocated by the European Union. Further discussion is needed on privacy, including defining the purpose of data use, user registration and identity verification, and the application scope of user transaction data. Is it only limited to what is necessary for transaction processing and regulatory Know Your Customer (KYC) requirements - or could it also include commercial purposes like user insights for intermediaries, product design, and marketing? The EU’s current plan is that user transaction data from the digital euro will not be used for commercial purposes. Limiting the scope of data application will certainly help to curb security risks, but it may also hinder opportunities for innovation. A compromise approach may be to give users the right to data use, allowing them to decide independently on the purpose and scope of the data use. At the same time, intermediaries would not be able to require data sharing for service use. The merchant handling fees of the digital New Taiwan Dollar are comparable to those of other digital payment tools. In addition, it integrates exclusive public services (such as issuance and exchange of digital vouchers), and its use should quickly spread after introduction. Of course, it will inevitably have some impact on the payment industry ecosystem, but from the perspective of market development, virtual assets have risen and payment tools have become increasingly diversified. The industry is entering a critical period of transformation. With a clear differentiated positioning, adding value in the gaps of the payment industry, it will not only not interfere with the market, but will further drive the advancement of payments. As the demand for cryptocurrencies grows, the payment industry will inevitably move toward cross-currency, cross-silo, cross-border, and cross-chain services; risk control will become more important. The digital New Taiwan dollar has a larger transaction network than other digital payment tools. The use of transaction data for risk control, with the permission of the regulator, should enhance banks’ capabilities for early determination of money laundering and fraud. At the same time, borrowing from the EU's experience with the digital euro, Taiwan could add a risk management framework (RFM) to the platform, collecting real-time information and developing indicators and pattern models for various abnormal activities including insufficient balance, delayed payment, money laundering, account theft, and fraudulent payments, outputting the results for reference by platform intermediaries to take immediate measures to block suspicious transaction patterns - providing an extra layer of protection for merchants, the public, and payment operators, while also opening up new application scenarios for payment services. According to the EU's current plan, the digital euro platform will allow participating institutions to use its personalized risk ratings based on the RFM to develop various financing (such as accounts receivables acquisition) and insurance services. Merchants can not only use the digital euro to process transaction flows, but also obtain convenient financing based on the RFM. The government should prioritize risk control for the future development of the digital New Taiwan Dollar, including it in the test scenarios as a project for future implementation. In addition to playing a demonstration role and establishing a new benchmark for risk control practices in the payment industry, the results could also be shared with the industry, as permitted by regulation. In addition to risk control, another key future application scenario is digital identity recognition. The EU’s EUDI digital identity wallet may bring some inspiration. With the EUDI, citizens of EU member states will be able to use a variety of public and private online services in sectors with standardized digital identities on a voluntary basis. A similar standardized digital identity verification model for Taiwan would allow the digital New Taiwan Dollar to be integrated with public services such as tax payments, helping to strengthen its uniqueness and policy positioning. There is no optimal design for a CDBC. The first priority should be new value propositions and public acceptance, before then discussing application scenarios, privacy, and risk control, carefully weighing factors such as industry development, supervision, and market competition. Evaluation will depend on the policy goals; there are pros and cons to defining the purpose of the digital New Taiwan Dollar in terms of either the payment industry or public services. Regardless of whether it is eventually implemented, this proposal has created an opportunity for collaboration among banks, industry, government, and academia. Even if used only for cross-border transactions, it could increase the international presence of the NTD. The central bank’s public hearings and briefings will continue over the next two quarters, and we hope that all parties will put aside their differences and consider the positioning of the digital New Taiwan Dollar from both a national and commercial perspective. Chen Ti-Chen is a researcher at the Financial Research Institute of TABF. Lai Jian-Yu is an assistant researcher at the Financial Research Institute of TABF.