Taking Digital Currencies Offline

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In many regions, internet-free access may be a make-or-break feature for central bank digital currencies.
Much current research and trials focus on internet-based technology, raising concerns about functionality when the web goes down in a war or a natural disaster.
75 percent of the world’s adult low-income population doesn’t have internet access (World Bank Findex Database).

Better risk management: digital currencies may be harder to steal than paper money.
Preserve payment sovereignty: central banks don’t want billions of transactions to be dependent on internet payment platform operators.
Financial inclusion: many people can’t afford conventional banking or lack internet access.

Work on offline digital payment systems dates back 30 years, predating smartphones.
Examples from the 1990s:
- 1993: Bank of Finland launched its Avant stored-value card (dropped in 2006).
- 1995: National Westminster Bank tested Mondex stored-value payment platform.
Avant and Mondex demonstrated technical feasibility but failed to achieve merchant adoption of required point-of-sale devices.
Contemporary approaches update Avant/Mondex concepts using multi-digit authorization codes or NFC connections; some require intermediary devices or online settlement to lower device costs and avoid internal batteries.

Giesecke+Devrient is testing an offline CBDC platform with the Bank of Ghana based on a stored-value card:
- Configured to allow for unlimited consecutive offline transactions but uses an intermediary device.
- eCedi accessible via a digital wallet app or contactless smart card usable offline.
People’s Bank of China reportedly experimenting with hardware wallets as part of digital yuan trials.
WhisperCash offers:
- A battery-powered credit-card-sized device costing about $70.
- An offline platform piggybacking on text-based, non-internet-enabled mobile “feature phones.”
- A $2 device attached to the phone’s SIM card to enable transactions via feature phones.
Device penetration and past pilot:
- Feature phones can be had for as little as $5.
- Even in low-income countries, 66 percent of adults own at least a feature phone.
- 2017–18: Central Bank of Uruguay conducted a successful six-month test of a CBDC accessible using feature phones (Sarmiento 2022).
The 170-year-old German banknote company Giesecke+Devrient is explicitly involved in the Bank of Ghana pilot.

Offline devices typically rely on tamper-resistant hardware to maintain integrity.
Policy constraints (limits on transaction amounts and balances) need protection to prevent misuse.
Limits also support enforcement of financial integrity regulations.
Possible controls:
- On-device analytics.
- Periodic synchronization with a trusted verification service to allow identification of suspicious transactions.

Bank of Canada is exploring universal access devices intended to incorporate attributes of cash and prevent interruption of digital transactions during infrastructure failures.
European Central Bank, in its exploratory work on a digital euro, is considering offline functionality.

Whether offline CBDC concepts will be adopted at scale is an open question.
In many regions, offline access appears to be a crucial feature for the viability and inclusiveness of central bank digital currencies.

Source: Taking Digital Currencies Offline — John Kiff, F&D Magazine, September 2022