Offline CBDC Can Improve Financial Inclusion And Privacy

According to a Bank of Canada paper, an offline CBDC might improve financial inclusion and privacy.

Canada’s central bank has spent years researching a digital dollar and what design characteristics would appeal to individuals with various payment demands and situations.

In a recent staff analysis report, the bank states that although digital payments have advanced, offline transactions have not, with physical money being the sole prevalent offline option.

Researchers have been looking into both short-term and long-term offline CBDC. The first would let consumers transact during brief offline times when the internet is down. The latter would need hardware to enable payments without an internet connection.

The note says that a CBDC that works offline is more stable than one that works online.

“For example, a user in a remote region with limited internet connectivity could use a CBDC to make purchases at the point of sale. Another user might prepare for an ice storm by obtaining a CBDC while connected to the internet and storing it offline long-term, to be used later if needed.”

The bank thinks an offline CBDC may safeguard cash payment privacy, increasing accessibility and inclusion. To be a bearer instrument with little personal data, the CBDC would need to be non-registered.

The researchers highlight that this may attract harmful actors and need effort to comply with illegal activity laws. Illegal activities follow the laws that are already in place.

Offline CBDC is being looked into by more than just the Bank of Canada. The Nordic branch of the Bank for International Settlements innovation center asked technology providers to propose offline CBDC capabilities last month.

In the meantime, China has started testing its offline digital yuan. Which looks like a typical chip-and-PIN credit card and comes in the form of a hard wallet.

“Central banks must understand the technology underpinning any extended offline solution because they have to stand behind the devices they issue and assume the risks involved in deployment and circulation,” says the Bank of Canada note.