Last week at the Asia Blockchain Summit, “Crypto Congressman” Jason Hsu provided me with the privilege of delivering these remarks to representatives of leading companies in the blockchain industry and government agencies including the National Development Council, National Communications Commission, and American Institute in Taiwan. Formosa Financial is eager to work with Taiwan’s financial institutions and ministries to unleash the benefits of financial technology innovation.

Jason asked me to speak about the potential for a project that many people in the blockchain community have been thinking about recently: issuing, holding, and exchanging New Taiwan Dollar on a blockchain or some other type of distributed ledger system.

I wanted to take this opportunity to first lay out the argument for why doing something like this may be impactful for Taiwan, discuss some potential design considerations in developing an experimental program, and potential next steps.

The Rationale for New Taiwan Dollar on the Blockchain

So why should Taiwanese regulators, financial institutions, and businesses explore the possibility of creating a new, blockchain-based, digital New Taiwan Dollar? There are many potential benefits, but realizing those benefits always starts with first assessing areas for improvement. Allow me to suggest two potential areas where such a project may be able to strengthen the competitiveness of Taiwan’s economy.

Firstly, Taiwan’s highly developed economy provides it with a strong and stable banking sector alongside a world-class electronics and information technology industry. These two factors combined mean that Taiwan ranks very favorably in terms of bank account and smartphone penetration, at over 90% and 70% of the population, respectively. Despite these figures, cash is still the dominant method for settling transactions. Implementing a digital Taiwan dollar can help ensure tax compliance, combat money laundering, and accelerate the velocity of money within the domestic economy.

Internationally, development of a blockchain based system for sending and exchanging NTD with other foreign currencies can help Taiwanese corporates and SMEs more efficiently manage their working capital and trade finance needs. Today, settling payments internationally is often an arduous, multi-step process laden with time delays, leg risk, and opaque fees. By enabling commercial banks to settle transactions between Taiwanese banks handling NTD and banks abroad handling other currencies such as USD or RMB many of these time and capital costs can be reduced significantly if not eliminated altogether. In a blockchain based system, payment, exchange, and settlement all take place simultaneously in a single, atomic, publicly verifiable transaction. Additional features to ensure compliance with foreign exchange rules and liquidity provisioning can be built around the system as safeguards to ensure that all inbound and outbound payments meet necessary requirements before execution.

Design Considerations for NTD on the Blockchain

Now that I’ve outlined some of the potential benefits, here are some key questions that need to be considered in designing a robust, safe, and scalable system to bring NTD onto a blockchain.

The first major question that needs to be addressed is who is the end user of this system. Is the digital NTD intended to be a general purpose replacement for bills and coins, used by citizens to settle retail payment transactions? If not intended for retail use, is this instead for the exclusive use of commercial banks conducting cross-border transactions on behalf of corporate clients?

Having clarity on the end user of the system informs all relevant design considerations in deciding which distributed ledger to use and which features need to be supported for the intended use cases of New Taiwan Dollar upon it.

These considerations include, but are not limited to: consensus algorithm, network node operators, use of a public or private blockchain, how read and write permissions are granted, interoperability with other blockchains, built-in exchange functions and more. By first defining the end users, relevant stakeholders, and intended use case, settling on the proper list of design features for this system will come into clearer and clearer focus.

When considering transformative projects, it is best to define the problem statement and goals as clearly as possible. This is always the first step. From there, deciding on the end user and their desired features will lead to technology selection and development.

At the moment there are numerous blockchains and software providers to choose from, but it may be difficult to find a “one size fits all” solution. That is why my suggestion is to design a small pilot program using proven technology to familiarize stakeholders with the relevant systems and processes to issue, hold, and exchange NTD for other assets on a blockchain in real-time.

A simple method for doing so would be to take existing NTD deposit money held at a bank, transfer it to a dedicated custodial account, then issue fully-reserved NTD tokens on a blockchain that can be transferred, audited, and approved amongst participants in real-time.

With the support of the ministers and chairpeople in the room today, alongside representatives in the banking and technology industries, we have the right collection of talent and motivation to move Taiwan’s economy into the blockchain era. In speaking for both myself and Formosa Financial, it would be a great honor to join you all in this journey. Thank you.