SODA: Offline Digital Currency Technical Considerations

There are currently at least 93 central banks exploring retail central bank digital currency (CBDC), of which eight have either launched or piloted. Motivations include financial inclusion and payment system efficiency, and maintaining public access to central bank money in the face of the encroachment of private digital currencies. Reducing the monopoly powers of private payment systems and fighting illicit activities are other key themes.

However, almost all the research and trials have focused on internet-based technology. They are essentially designed to work when everything works. But critical services like payments should be more resilient and offer survivability in the face of connectivity failures. Consider also that 75% of the world’s adult low-income population doesn’t even have internet access (World Bank Findex Database). That’s where a little-noticed but long-running push to develop offline digital payment systems comes in. Some of this work goes back 30 years, to a time long before smartphones.

In 1993, the Bank of Finland launched its Avant stored-value card. It was capable of offline payments using a custom-made card reader device, but it never caught on and was dropped in 2006. National Westminster Bank tested a similar stored-value payment platform called Mondex in the United Kingdom in 1995. Both showed that the technology worked, but not enough merchants acquired the necessary point-of-sale devices. For peer-to-peer transactions, users had to access it through special devices.

Recently, several firms have launched updated versions of the Avant and Mondex concepts that are capable of handling offline payments. Users send and receive funds by exchanging multi-digit authorization codes. Some require intermediary devices like mobile phones or online connections to fully settle transactions, to keep device costs down and eliminate the need for internal battery power.

For example, Giesecke+Devrient tested an offline CBDC platform with the Bank of Ghana based on a stored-value card. It was configured to allow for unlimited consecutive offline transactions using intermediary devices like smartphones. The e-Cedi could be used by anyone with either a digital wallet app or a contactless smart card that can be used offline. The People’s Bank of China has reportedly been ...

Note: This article benefitted from comments from Jerome Ajdenbaum, Razvan Dragomirescu, Lars Hupel, and Joachim Samuelsson.

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