A senior Taiwanese official is urging the government to prepare policies to tackle the potential impact of cryptocurrencies on the island's financial stability.

Speaking at a seminar, hosted on Feb. 2 by Taiwan Academy of Banking and Finance, Shih Jun-ji, vice president of Taiwan's executive branch of government, addressed issues around the financial impact of cryptocurrencies and the relevant regulatory responses.

According to a government report, Shih said that amid the rapid development of cryptocurrencies in recent years, Taiwan should be proactively engaging in exploring policies to tackle the technology's increasing influence on finance. Further, the country should be well-positioned to maintain its financial stability in the event of a market collapse, he said.

The official explained that bitcoin's market capitalization – around $170 billion when it was trading at $10,000 – would equal one third of Taiwan's foreign exchange reserve, twice of the government's financial budget or about the total assets of all the banks in Taiwan.

While bitcoin's surging price has led to the belief in may quarters that the cryptocurrency is in a major bubble, Shih said, the price surge itself does not necessarily mean that is the case.

Nevertheless, he concluded that the government should start exploring measures to ensure it is well-prepared to handle the impact in the case of a severe drop in prices.

Shih was previously chairman of Taiwan's Financial Supervisory Commission from 2016 to 2017.

Taipei city image via Shutterstock