The island nation is looking to complete trials of its prototype Central Bank Digital Currency (CBDC) by the third quarter of this year. Its most recent design is a two-tier system that allows consumers to exchange bank deposits with digital currency. In addition, the CBDC can also be linked to credit and debit cards and will be legal tender.
Such a multi-channel approach in creating a digital currency has been lauded as necessary by industry stalwarts. The chairman of one of Taiwan’s biggest banks observed that people don’t want a single channel digital currency because it will be troublesome if there is a problem with that one channel. He further stressed that in the whole financial system there exist multiple channels.
Indeed, a central bank digital currency is one digital transformation that is is being keenly pursued by the banking and financial services domain. Many of the world’s biggest economies are moving to make the most of digital currencies. Taiwan confirmed that its CBDC development is taking the lead of the United States, Europe, Japan and Korea.
In a recent announcement, European Union Commissioner for Financial Services, Mairead McGuinness, announced plans to introduce a bill creating a digital euro next year. Based on current experiments, an EU CBDC could be in use in the public sphere as soon as 2025. The EU has been looking forward to a CBDC for several years. Notably, European Central Bank (ECB) President, Christine Lagarde, announced last July that the bank had “decided to move up a gear and start the investigation phase of the digital euro project.”
The Federal Reserve of the U.S. is taking its first steps towards a digital dollar while China is already in the final stages of its Digital Yuan. The drivers for China’s CBDC stems from the dramatic decline in cash usage, not to mention the concerns of having private monopolies control retail payment systems. In contrast, Taiwan’s economy has plenty of cash in circulation.
It’s vital to know that no CBDC will function exactly like the other. Much like any policy or government initiative, each nation will have its own way of distributing, governing and structuring what the digital currency can or cannot do.
Technically, there are also two classifications for CBDCs: (1) retail, focused on the general public with everyday applications, and (2) wholesale, aimed at facilitating transactions and settlements between financial institutions who hold funds in central banks.
And rightly so. CBDCs are actual central bank-issued money themselves and are not just digital representations of money. Thus, they can easily be transferable between entities and carry the same value in third-party wallets or platforms. As such, they can be stored in digital wallets and citizens can use them wherever they go. In short, CBDCs spell a lot of conveniences.
Certainly, a CBDC can be a great leap forward for Taiwan in its journey towards digital transformation. Already, a lot of digital innovations are in the offing for the island nation, including a digital upgrade of its healthcare system.
Recently, a manufacturer inked a deal with the government sector to build digital healthcare devices and develop a digital health ecosystem, as reported on OpenGov Asia. The company is set to make Taiwan the launching pad of its plans to introduce such advanced digital technology to the rest of Southeast Asia. So, Taiwanese will have a taste of the best digital healthcare can offer firsthand.