Taiwan Pioneers Comprehensive Stablecoin Regulation: A New Chapter for Digital Assets

Taiwan is poised to significantly advance its digital asset regulatory landscape with the Financial Supervisory Commission (FSC) actively drafting the “Virtual Asset Service Act.” A landmark feature of this proposed legislation is a dedicated chapter on “Stablecoin Issuance and Management,” which introduces, for the first time, a formal licensing system for stablecoin activities. This strategic move underscores Taiwan’s commitment to integrating digital currencies into its financial ecosystem, with the Central Bank of the Republic of China (Taiwan) (CBC) confirming its intention to regulate stablecoins, particularly as they expand into real-economy payments and emerge as potential tools for cross-border transactions. The CBC’s announcement marks its inaugural public statement on stablecoin oversight.

Unpacking Taiwan’s Proposed Stablecoin Regulatory Framework

The “Stablecoin Issuance and Management” chapter within the draft Virtual Asset Service Act is designed to establish clear guidelines and robust oversight for the rapidly evolving stablecoin market. It unequivocally states that all stablecoins, regardless of their origin—domestic or foreign—must secure explicit approval from the competent authority before they can be issued or circulated within Taiwan’s jurisdiction. This all-encompassing approach aims to ensure that every stablecoin operating within Taiwan adheres to a consistent and stringent set of regulatory standards.

The Path to Issuance: Prioritizing Financial Institutions

FSC Chairman Peng Jin-lung has drawn parallels with international developments, noting that jurisdictions such as the United States and Hong Kong have begun permitting e-commerce platforms and other corporate entities to apply for stablecoin issuance. While Taiwan’s draft special law does not explicitly prohibit “non-financial institutions” from issuing stablecoins, the FSC, guided by a principle of prudential financial oversight, currently favors a model where established financial institutions take the lead in this emerging sector. This cautious strategy is intended to leverage the existing regulatory expertise and robust infrastructure of traditional financial players, ensuring greater stability and consumer protection.

Central Bank’s Mandate: Safeguarding Monetary and Financial Stability

The regulation of stablecoins, particularly those falling under the Central Bank’s purview, was a central topic during a recent special report to the Legislative Yuan’s Finance Committee on the draft Virtual Asset Service Act. In its detailed written report, the CBC highlighted that the FSC’s proposed stablecoin issuance regulations closely mirror international best practices adopted in the United States and the European Union. These comprehensive requirements cover critical aspects such as:

• Issuance Permits: Mandatory authorization for all stablecoin issuance activities.
• Issuer Qualifications: Stringent criteria for entities permitted to issue stablecoins.
• Asset Segregation: Strict rules to ensure user funds are kept entirely separate from operational funds.
• Reserve Asset Management: Clear guidelines for the prudent management and safeguarding of underlying reserve assets.
• Prohibition of Interest Payments: Measures to prevent stablecoins from functioning as interest-bearing deposits, maintaining their role as a stable medium of exchange.
• Information Disclosure: Transparent reporting requirements to ensure market integrity and investor confidence.

Robust Reserve Requirements: A Cornerstone of Stability

Recognizing that stablecoins inherently involve “absorbing funds from the general public”—a characteristic akin to electronic payment stored value—the CBC has put forth significant recommendations regarding reserve requirements. It proposes that stablecoin issuers be subject to regulations similar to those governing electronic payment institutions. Specifically, once the scale of stablecoin issuance reaches a predetermined threshold, a portion of the reserve (or backing) assets must be deposited with the Central Bank as statutory reserves. The remaining assets would then be prudently managed, either through bank deposits or investments in high-quality, highly liquid financial instruments, such such as short-term bonds or commercial papers.

Crucially, to effectively mitigate the risk of “bank runs” and guarantee users’ ability to redeem fiat currency at face value, the CBC emphatically states that the value of stablecoin reserve assets must consistently be greater than (over-reserved) or equal to the total issuance amount. This over-reserving strategy provides an additional layer of security and confidence for stablecoin holders.

Stablecoins and Foreign Exchange: A New Frontier for Cross-Border Payments

From a foreign exchange perspective, the CBC acknowledges that stablecoins are currently predominantly utilized for virtual asset trading. However, it anticipates a future where stablecoins could extend into real-economy payments, potentially transforming into powerful and efficient tools for cross-border transactions and the seamless exchange of Taiwan Dollar (NTD) and foreign currency assets. In preparation for such developments, the Central Bank will proactively research and establish operational procedures and regulations for relevant operators to report data to the CBC concerning stablecoins’ applications in real economic activities.

A Unified Vision: Collaborative Oversight for a Secure Digital Future

The Central Bank has underscored its firm commitment to close collaboration with the FSC in developing the necessary sub-regulations for domestic virtual asset service providers. This strategic partnership ensures a holistic and well-coordinated approach to supervision. Moving forward, before stablecoin issuers can apply for their issuance permits, the FSC will actively solicit input from the CBC. The Central Bank, in turn, will offer expert recommendations spanning critical areas such as monetary policy, foreign exchange management, and payment system stability. This integrated regulatory strategy aims to establish a comprehensive and robust framework that adeptly balances the imperative of financial stability with the dynamic pursuit of innovation in the digital asset space, fostering a secure and prosperous environment for Taiwan’s burgeoning virtual asset market.