## Taking Digital Currencies Offline

## Source details

**Canonical URL:** [Taking Digital Currencies Offline](https://www.imf.org/en/publications/fandd/issues/2022/09/kiff-taking-digital-currencies-offline)

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## Bibliographic details
- Authors: John Kiff
- Published: July 31, 2022

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### Key premise
- 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).

### Reasons central banks pursue CBDCs (as stated)
- 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.

### Offline digital currency concepts and history
- 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.

### Recent pilots, platforms, and technologies
- 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.

### Device constraints and policy considerations
- 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.

### Central bank exploratory work
- 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.

### Takeaway
- 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*

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_Source: https://www.imf.org/en/publications/fandd/issues/2022/09/kiff-taking-digital-currencies-offline_