Bank of Canada explores CDBC use for offline payments

One potential scenario that would require an offline CBDC payment would be a temporary lack of internet access caused by a telecom outage, or simply because the user is on a plane. This particular use case is named intermittent offline CBDC. The paper also explored a scenario in which users would experience a long-term need to make payments without the internet. An extended offline CBDC could be necessary in the event of a natural disaster or a severe weather incident. 

The system would allow an intermittently offline user to perform a payment without being connected to the internet but the receiving party would only be able to spend the funds once the transaction has been confirmed as legitimate via internet access.  

In the case of an extended offline CBDC, hardware devices would replace the internet when it comes to guaranteeing the security of payments. In this case, the currency that is received offline can also be re-spent. The system would rely on smartphone-enabled hardware security or special-purpose devices.

Are offline CDBC payments risky? 

According to ledgerinsights.com, both intermittently offline CBDC payments, as well as extended offline CBDC payments create new risk avenues. Extended offline CDBC use has the highest potential for risk given its reliance on hardware. If the hardware in question becomes compromised, users could lose their currency. 

Because of these potential risks, users would likely receive appropriate warnings and would be informed of certain restrictions on the amount of CBDC held and transaction values. In an extended offline event such as a natural disaster, merchants should be prepared to distribute an offline CBDC, but the problem is that most people won’t be able to digitally access their money to exchange it for the offline one. 

Ledgerinsights also reports that there’s an increased interest in offline CBDC. For instance, The Nordic branch of the BIS Innovation Hub recently launched Project Polaris, which was looking for offline CBDC solution providers. Project Polaris’ goals are to explore central bank digital currency (CBDC) resilience and security, as well as to research offline CBDCs. 

The main motivators for offline CBDSs are resilience, financial inclusion, and the fact that this type of currency might feel closer to physical cash because there is often no intermediary.