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Australia pilots offline CBDC, but challenges hinder real-world deployment

Australia’s attempt at launching a central bank digital currency (CBDC) has reached a milestone following the successful completion of a pilot testing offline payment functionalities.

The pilot, led by Australia and New Zealand Banking Group (ANZ), involved selected students and vendors of Southern Cross University. According to details from local publication Lismore City News, the eight-week pilot recorded successes in settling transactions without internet connectivity.

Ten students received NFC-enabled smart cards loaded with eAUD, programmed to be spent at designated merchants within the campus. Preliminary reports from selected merchants on the study yielded positive responses, but pundits remain unsure over the applicability of the functionality in other scenarios.

In 2022, students and residents in the area could not access financial services because of massive floods that affected the power supply. With floods predicted to be a seasonal occurrence, it is expected that the central bank could throw more weight on a similar pilot with more participants.

“The aim of the pilot is to demonstrate how an organization like a university can step in and provide immediate financial support through the disbursement of CBDC in emergency situations, like a flood, where students are unable to access funds online or traditional baking services,” University Director of Financial Services Richard Jones said.

For all its successes, analysts say that it is highly unlikely that an offline CBDC will receive mass traction because of the reluctance of residents to hold CBDCs in NFC-enabled cards in the event of an emergency. One way around the challenge is for the government to dole offline CBDCs to residents without internet access as a loan to be repaid or as grants to mitigate the effects of natural disasters.

“The main thing I noticed was the reliability because it works offline. It isn’t susceptible to the network errors that other card systems have trouble with,” said Tim Gorder, one of the pilot’s participants.

The Reserve Bank of Australia (RBA) has been experimenting with CBDCs since 2022, but despite initial successes, the banking regulator says a CBDC solution is still “several years away.” In a recent report, the RBA says a CBDC could offer greater financial inclusion, private digital money innovation and interoperability between systems, and cross-border payment functionalities.

Exploring offline payments

Several central banks have begun preliminary studies involving offline payments, but the research has been marred by the absence of global technical standards. Under the theory proposed by the Bank of Canada, a foray into offline CBDC payment could involve using a “distinct ecosystem supported by dedicated devices.”

The People’s Bank of China (PBoC) and the Russian central bank have listed offline payment functionality as potential ways to make their CBDC compete with local payment alternatives. Other central banks are proceeding with contactless payments, deployment in securities, and cross-border transactions as novel functionalities for their proposed CBDCs.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

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