Taiwan’s financial sector is known for its conservative outlook and rich pools of foreign reserves – the fifth-largest in the world at $546 billion for a country of 24 million.
Thanks to its conservative outlook and strict regulatory environment, Taiwan isn’t considered a regional financial hub like neighbors Hong Kong and Singapore. Taiwan is better known for its technology manufacturing giants, such as Taiwan Semiconductor Manufacturing Company (TSMC).
The government wants to change that perception.
A pillar of Taiwanese President Tsai Ing-wen’s 2017 election campaign was the "New Southbound Policy" to encourage diversification of exports away from China to Southeast Asia, and the expansion of other parts of the economy such as financial services.
That's where XREX, a Taipei-based TradeTech fintech that closed a $17 million round in August, wants to step in.
Given Taiwan’s strong U.S. dollar holdings and the dollar shortfall in many Southeast Asian countries such as India, XREX wants to build bridges between countries for business remittances, with the backend powered by stablecoins including USDC, DAI and USDT.
“Taiwan is not known globally for exporting its financial sector, but Taiwan is known for its robust domestic banking industry,” Wayne Huang, XREX’s CEO and co-founder, told CoinDesk in an interview. “So far, the banking industry hasn’t been able to export the industry to emerging markets, and we want to change that.”
Among XREX’s investors is Taiwan’s National Development Fund (NDF), a sovereign wealth fund that allocates capital for technological innovation and economic diversification.
“The government feels that there’s not been enough effort to export financial services,” said Huang, mentioning that fintech and firms incorporating blockchain technology are areas of interest for the NDF.
One of XREX’s first target markets is India, which has capital controls on the amount of outbound remittances a person or entity can send per year, which leads to a dollar shortfall in-country and headaches for businesses looking to pay vendors abroad.
India has a large diaspora in Canada, where XREX was recently granted a Money Services Business license from Financial Transactions and Reports Analysis Centre of Canada, or FinTrac, the country’s national financial intelligence agency.
“There’s been very good regulatory clarity from the Canadian regulators. They have made everything very clear, and we know exactly what’s expected from us,” Huang said. He said XREX uses crypto forensics suite CipherTrace to augment its anti-money laundering (AML) efforts.
Taiwan's regulatory abyss
But this same regulatory clarity doesn’t exist in Taiwan, Huang told CoinDesk. The company has registered and had some initial conversations with the Taiwanese financial regulator, the Financial Supervisory Commission, and Huang said the regulator hasn’t shown much interest.
This is because XREX builds financial pipes between countries, without touching the Taiwanese banking system or using Taiwan’s currency. Capital between Canada and India, for example, would be on-ramped with local currency in the respective countries, then sent between them as a stablecoin. Most of the company’s clients aren’t Taiwanese, and it doesn’t offer services in China.
Taiwan’s hands-off approach to non-Taiwanese currency activity in its banking system might have been why stablecoin issuer Tether called the nation home for many years before being cut off by its correspondent banking partners in 2017 (Tether unsuccessfully sued Wells Fargo, its erstwhile partner, to restore access and provide an explanation.) Huang said XREX’s U.S. dollar partners have already audited the operation and are OK with it.
“I’m optimistic that in a few years there will be crypto-specific licenses in Taiwan. We want to apply for these licenses, and we want regulators to be familiar with XREX. We are looking forward to the government making available some type of license for us to apply,” Huang said.
Until a Taiwanese license is available, Huang told CoinDesk, XREX plans to keep on applying for other licenses around the world as it expands its business. Next up is Singapore, where XREX is applying for a Major Payment Institution license, which would allow it to conduct money transfers and offer digital payment token services to Singapore residents.
“We want to be a regulated entity,” he said.
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