The Central Bank of Taiwan released a report titled " Explanation of Issues Related to US Dollar Stablecoins and New Taiwan Dollar Stablecoins " at a press conference held after the Central Bank's Board of Directors meeting today (the 18th). The report not only clearly addresses the impact of stablecoins on money supply and the financial system, but also addresses the traditional financial myth that "stablecoins are EasyCards," explaining the difference.
Stablecoin Challenges: Difficulty Balancing Capital Efficiency and Price Stability
The central bank report pointed out that the challenge faced by the stablecoin design system is that it is difficult to balance price stability and capital utilization efficiency at the same time. Stablecoins with sufficient asset reserves such as USDT and USDC have low capital utilization efficiency, and algorithmic stablecoins such as TerraUSD are difficult to maintain stability.
Another issue is market confidence. Stablecoins have experienced several instances of decoupling and even the collapse of their issuers in just a few years. The Terra bankruptcy and even the collapse of the crypto-friendly Silicon Valley Bank (SVB) caused the value of USDC to plummet, dropping to as low as $0.85-0.87.
If Taiwanese businesses issue USD stablecoins, they must be regulated by both Taiwanese and US laws.
The Genius Act was also officially launched in response to the development of cryptocurrencies, clearly establishing a regulatory framework for payment stablecoins. The central bank report specifically mentioned the Genius Act's regulations for overseas issuers. The Genius Act stipulates that payment stablecoins issued by non-US issuers must meet the following conditions:
- The regulatory system of the issuer's country must be determined by the U.S. Treasury Department to be equivalent to the GENIUS Act.
- Registered with the U.S. Department of the Treasury's Office of the Comptroller of the Currency (OCC).
- Issuers must hold sufficient reserve assets in U.S. financial institutions to meet the liquidity needs of U.S. users.
- The issuer's country must not be subject to comprehensive sanctions by the United States or listed as a high-risk country or region for money laundering.
This means that if Taiwanese businesses wish to issue stablecoins legally usable in the United States, they will be subject to both Taiwanese regulations and the US GENIUS Act. Market considerations suggest that the general public may prefer US dollar-denominated stablecoins issued by US institutions, displacing Taiwanese businesses in this capacity.
Blockchain breaks the traditional multi-layer intermediary commission system and directly impacts SWIFT transaction volume
The central bank noted that the most direct impact of stablecoins on the global payment system is the impact on SWIFT transaction volume. Currently, global interbank cross-border payments and settlements are primarily conducted through the Society for Worldwide Interbank Financial Telecommunication (SWIFT), with the US dollar being the primary transaction currency. Compared to traditional cross-border payment systems, stablecoins can eliminate the complex processes of correspondent banks, correspondent banks, and clearing systems.
Traditional cross-border transactions take 1-5 business days and cost between $0.20 and $50 per transaction. However, emerging public blockchains, other than the Mainnet and Ethereum mainnets, offer almost instant settlement and fees of less than $0.10 per transaction. For example, if a user transfers funds from Taiwan to a US bank, the funds are first transferred to a Taiwanese bank, then settled with a US bank via SWIFT. The funds are then transferred to the US bank before reaching the US user.
Through blockchain and stablecoins, cash flows can be simplified, settlements can be made instantly, and fees charged by intermediaries can be saved. This can be done 24 hours a day, 365 days a year.
The central bank report contradicts Qu Bo, saying that the issuance of stablecoins has no effect on money supply
Previously, Wen Hongjun, vice president of the Taiwan Fintech Association, stated that stablecoins are a substitute for bank deposits (M1 and M2), and therefore issuing stablecoins does not itself increase the money supply. Influencer Qu Bo, in a live broadcast by the Taiwan Blockchain Enthusiasts Association (starting at 3:25:47), stated that the issuance of stablecoins turns one dollar into three.
Qu Bo cites an example: an issuer issues $4 trillion in stablecoins (which are equivalent to cash). The issuer would then own $4 trillion, which they would then use to purchase $4 trillion in U.S. Treasury bonds. The U.S. government, upon receiving the $4 trillion in cash, would, of course, spend it. At this point, there would be $4 trillion in circulation in the real world, and $4 trillion in stablecoins circulating on-chain. He further speculates that the goal of those in the crypto industry is to sell the shorted cryptocurrency to stablecoin holders, with $4 trillion in cryptocurrency also circulating on-chain.
He said that there are four trillion US dollars of cryptocurrency circulating on the chain, four trillion US dollars of stablecoins circulating, and another four trillion US dollars circulating in the real world, so one US dollar becomes three.
(He added that it is impossible to sell all cryptocurrencies into stablecoins.)
However, the central bank's report refutes Qu Bo's original conclusion, stating explicitly that funds continue to circulate within the monetary system, and the broad money supply (M3) remains unchanged. In reality, users receive the issuer's tokenized liabilities (stablecoins). The issuer holds claims against the U.S. Treasury (T-Bills). Overall, society simply has one asset corresponding to one liability; the form and holder have changed, but no new broad money supply has been created.
Regarding the risk of outflows of demand deposits (M1 and M2) that some banks are concerned about, the central bank cited research showing no statistically significant correlation between stablecoin use and bank deposit outflows. This may be because the reserve assets of stablecoins remain in the financial system (e.g., cash deposited with banks and Treasury bills held at custodian banks), supporting bank lending.
What is the difference between stablecoins and EasyCards? Can they be used as a medium of exchange?
The central bank stated that it will follow the EU's approach and place stablecoin regulations within a dedicated virtual asset law, rather than establishing a dedicated stablecoin law as the United States has done. The issuance of stablecoins involves soliciting funds from the general public, similar to the current practice of electronic payment systems where stored value funds are deposited by the general public (users), and both are used for payment purposes. However, the key difference from electronic payment systems like EasyCard is that stablecoins can be used as a medium of exchange in the virtual market.
Another type of reserve asset similar to existing stablecoins is a money market mutual fund (MMF). Both have similar investment portfolios, primarily comprised of high-quality, highly liquid financial assets. However, the key difference is that stablecoins are payment instruments, while MMFs are short-term fund management tools. For example, USDT's reserve assets comprise 76% of US Treasury bills and bank deposits, 4% of which is invested in money market mutual funds (MMFs), and the remainder in Bitcoin, precious metals, and other assets. Meanwhile, BlackRock's Government Money Market Fund maintains exposure to various US government bonds.
The central bank has clarified the regulations on the reserve assets of the New Taiwan Dollar stablecoin
The central bank's report also clearly stipulates that the Taiwan dollar stablecoin must be 100% trust-backed, similar to current electronic payments. A portion of the reserve assets must be deposited with the central bank, while the remainder can be used for deposits or purchases of high-quality, highly liquid financial assets (such as short-term bonds or bills), as practiced internationally. The following chart compares the asset reserves of EasyCard companies, money market mutual funds, and the asset reserves permitted for future Taiwan dollar stablecoins:
Central Bank Report: New Taiwan Dollar Stablecoin Has Little Impact on Domestic Payment System and Money Supply
Regarding the impact of the New Taiwan Dollar (NTD) stablecoin as a payment tool on the current domestic payment system, the central bank believes that there are currently few virtual assets denominated in New Taiwan Dollars in the virtual market, and therefore the demand for a New Taiwan Dollar stablecoin is not significant. Furthermore, Taiwan's payment system is quite comprehensive, with a variety of payment tools such as credit cards, debit cards, bank deposits, and electronic payments. Therefore, the impact of the New Taiwan Dollar stablecoin as a payment tool on the domestic payment system is expected to be limited.
Regarding the impact on domestic money supply and monetary policy, the central bank stated that the issuance of the New Taiwan Dollar stablecoin should only result in a reallocation of funds in the market, with minimal impact on Taiwan's broad money supply (M2) and bank credit creation. After citizens purchase the New Taiwan Dollar stablecoin, the issuer will use the proceeds to purchase reserve assets, and the funds will continue to circulate within the monetary system, leaving M2 largely unchanged.
The New Taiwan Dollar (NTD) stablecoin does not earn interest to holders, and since the NTD is not an international currency, the public has little incentive to hold it. Therefore, its impact on credit creation within the domestic banking system is limited. Furthermore, the circulation of short-term government bonds in Taiwan is small, limiting the available reserve assets for the stablecoin. Furthermore, the NTD funds used to purchase short-term bonds will still flow back into the banking system, thus minimizing the impact on domestic credit creation. Finally, the central bank also announced that it can still adjust overall NTD liquidity through adjustments to the policy interest rate and open market operations.
This article analyzes the research report on the Taiwan Central Bank's stablecoin: It is completely different from the EasyCard and does not affect the money supply. It first appeared in ABMedia ABMedia .
