Taiwan’s Bold Move: Central Bank Custody Takes Center Stage in Stablecoin Regulation

Taiwan shakes up crypto oversight with a radical proposal—handing stablecoin custody to the central bank. No more wild west: regulators aim to clamp down on volatility and protect investors.

Why it matters: Stablecoins are the backbone of crypto trading. Putting them under central bank control could mean tighter liquidity—or a stamp of legitimacy.

The irony? Banks now scrambling to 'protect' crypto while still refusing to touch Bitcoin. Some things never change.

Intense international pressure

Stablecoins are no longer a concept of the future. They are already a part of today’s financial reality. A Taiwan’s trade survey in October found that almost 5% of importers and exporters in the territory are using USD stablecoins.

The uptake rate surprised James Lee, a senior advisor at the Taiwan External Trade Development Council (TAITRA) who initially estimated 0.5 percent.

He argues that the data underscores the continuing and unrivaled dominance of USD stablecoins.

“USD stablecoins will wipe out probably half of national currencies in 10 to 20 years. It will probably destroy quite a lot of the traditional banks if they don’t understand what they’re doing. So this is an opportunity, but it’s also a risk”

The dilemma of minting a Taiwan dollar stablecoin

Taiwan’s ambition to bring stablecoins under formal regulation now carries added complexity as issuers explore a Taiwan dollar and USD pegged stablecoin. But Lee warns against both ideas.

He said Taiwan should be cautious due to the lack of scalability and the low interest return of roughly 1% on reserves compared to 4% in the U.S.

“Why WOULD somebody use a less well known stablecoin that is in USD, let alone a Taiwan dollar pegged stablecoin when they can use USDC and USDT for zero switching costs? It is very difficult for latecomers to compete with these aside from very niche players.”

Lee argues that Taiwan should focus on the existing success of the USD stablecoin system and research how to build on that. He explained USD stablecoin works not because they need to trade with the U.S, but because they can trade among themselves and also with the virtual world.

“Taiwanese companies need any edge they can get when they compete internationally. USD stablecoins in international trade will give them some edge.”

Ongoing AML gaps

The draft act, currently pending review, excludes AML provisions based on the belief that Taiwan’s 2024 Money Laundering Control Act already tightened oversight.

The AML amendment severely reduced the number of digital asset exchanges from as many as 30 to nine. The FSC ordered 18 firms to cease operations until they pass the registration requirements.

But the crypto Travel Rule which would compel exchanges to share cross border sender and recipient transfer details, has yet to take effect.

Cross border crypto scams escalate

Chen said the more immediate risk isn’t regulatory ambiguity but the rise in crypto-related scams and fraud.

“Scams are happening everywhere in Taiwan,” he said. “From the regulator’s perspective, it’s not only a money laundering concern but a threat to investor confidence.”

The cyberattack on Taiwan-based exchange BitoPro in May 2025 is a prime example which led to $11.5 million being stolen from hot wallets.

“From my personal experience, when I help analyze where Taiwanese victims’ funds went, they always go to international exchanges,” Chen said.

Once money is moved offshore authorities have little recourse.

“If they’re not within our legal framework, law enforcement can only ask them if they’re willing to help,” Chen said. “It’s all voluntary. There’s no legal binding requirement.”

Angela Ang, Head of APAC Policy at blockchain intelligence platform TRM Labs said it’s very difficult for governments to stop citizens from registering with an exchange that isn’t licensed in your jurisdiction.

“Let’s say they were contacted by someone on a scam call, they were taught how to onramp their money to an offshore exchange. That is not something that you can stop by regulating exchanges.”

But she said regulating the local digital asset ecosystem can still help.

“If you want to MOVE local currency, like fiat proceeds into an offshore exchange, at the end of the day you still need to have a local presence in order to on-ramp.”

Quality design over pace

James Lee, senior advisor at the Taiwan External Trade Development Council (TAITRA) believes tighter rules are almost always the better option as long as it’s smartly designed.

But he stressed the best approach regulators can take is considering stablecoins as an issue beyond the scope of traditional regulatory bodies.

“I think it is important to first understand what stablecoins are exactly. Then it needs to be examined from the point of national interest, not just currency. It’s not just about imports and exports or the financial sector. From that I think every country will be able to come up with different strategies.”

Looking ahead

Charlie Chen from Taiwan’s Virtual Asset Anti-Money Laundering Association (TVA3) & Chainvestigate, said Taiwan-dollar stablecoins might be able to reach pilot phase within the next two years.

“It will be cautious, but a very important step for us,” he said.

Chen added he hopes the stablecoin will run on a public chain, like Ethereum, to ensure liquidity and global access.

“Otherwise it would lose much of its purpose,” he said.

Claim your free seat in an exclusive crypto trading community - limited to 1,000 members.