Should Bitcoin and stablecoins be included in foreign exchange reserves? Yang Chin-lung: The central bank’s stance will not change, but time and circumstances will.

Author: Ariel, Crypto City

Legislator Reintroduces the Idea of Including Bitcoin and Stablecoins in Taiwan’s Foreign Exchange Reserves Yesterday, Legislator Ko Ju- chun questioned the Governor of the Central Bank of the Republic of China, Yang Chin-lung, again raising whether it would be possible to make Bitcoin and stablecoins part of a small portion of Taiwan’s foreign exchange reserves. He believes Taiwan is in a special geopolitical environment and may face extreme scenarios in the future, such as a naval blockade at sea or a full-scale invasion. In these situations, compared with traditional U.S. dollars and gold, Bitcoin has the characteristics of being fully accessible, sovereignty-independent, and spendable. Considering that the central bank may have concerns about Bitcoin’s price volatility and liquidity risk, Ko Ju- chun further suggested that the government could start with stablecoins, which have relatively more stable prices and higher liquidity, and said they offer advantages such as convenient cross-border circulation, fast transfer speeds, and the ability to operate instantly in a digital environment. Ko Ju- chun argues that the government should take a risk-diversification approach, and carefully assess the feasibility of using stablecoins as a small portion of strategic reserve tools, thereby establishing innovative thinking to deal with future risks.

Image source: Ko Ju- chun Threads ｜ Legislator Ko Ju- chun Reintroduces Bitcoin and Stablecoins for Inclusion in Taiwan’s Foreign Exchange Reserves

Yang Chin-lung: The current stance remains unchanged, but time and circumstances will change In response to Ko Ju- chun’s proposal, Central Bank Governor Yang Chin-lung said during the session that the central bank would consider Bitcoin and stablecoins together; however, regarding the stance of using them as a small portion of foreign exchange reserve strategic reserves, it has not changed so far. The conclusion of the central bank’s report last year was that Bitcoin is not currently suitable to be used as Taiwan’s central bank reserve asset. Even though it has potential advantages such as portability in wartime scenarios, concerns remain due to severe price volatility, liquidity risk, cybersecurity and custody risk, and an immature regulatory framework. While maintaining the existing position, Yang Chin-lung also added that “time and circumstances will change,” and when the situation changes, the central bank’s decisions must also make necessary adjustments. Judging from the context of the questioning session alone, these remarks lean toward conservative language that supports open-ended adjustments, and at the current stage the central bank’s willingness to purchase crypto assets as reserves remains quite low.

Central Bank Assessment Report Establishes Stablecoin Payment-Type Models On the subject of stablecoins, last year the central bank also released a report proposing to categorize stablecoins into three major types based on the source of the backing assets: “those backed by high-quality assets,” “those backed by crypto assets,” and “unbacked algorithmic types.” The central bank defines stablecoins as “a digital evolution of a payment-value storage medium whose nature is close to existing electronic payment systems,” and believes that the domestic demand to denominate new Taiwan dollars in the crypto market is still small; therefore, stablecoin issuance would have limited impact on the domestic payment system and the supply of money. If new Taiwan dollar stablecoins are opened in the future, they would be required to follow electronic payment providers’ rules to set aside reserve funds.

Global Central Banks Take a Conservative Stance; Ko Ju- chun Says Short-Term Implementation May Be Difficult In its report from last year, the central bank also stated that globally as many as 93% of central banks have no intention of holding digital assets, including international institutions such as the European Central Bank and the U.S. Federal Reserve, and their stance toward holding reserve Bitcoin is also conservative. Most views believe that Bitcoin lacks intrinsic value and cannot currently fulfill the role of a central bank reserve asset. In Taiwan, because seized and confiscated Bitcoin from criminal investigations has accumulated to 210.45 BTC, with a total market value of about 18 million U.S. dollars, although it places Taiwan among the top 10 government holders of Bitcoin globally, all of these assets come from the seizure of financial crimes and illegal cases. The Ministry of Justice has not yet announced whether it will convert or retain the confiscated Bitcoin, nor has it established any plan to include it in the national strategic reserves. With no real precedent internationally, and given that Taiwan’s central bank stance is clearly conservative, legislators’ suggestions to include Bitcoin or stablecoins in official foreign exchange reserves are likely difficult to carry out in the short term, and the notion that “time and circumstances will change” is only conservative talk about open-ended adjustments. The dream of Taiwan’s Bitcoin and stablecoin strategic reserves still needs to return to the essence of foreign exchange reserves, the central bank’s core responsibilities, and the suitability of international cases to explore—to see whether it will become a “bonus item” for the country’s financial system or whether it will be dismissed as a misunderstood technology narrative?