Central bank digital currency coin on laptop keyboard

BIS shines light on offline CBDC payments in new handbook

The Bank for International Settlements (BIS) has released a handbook detailing the functionality of offline payments in a central bank digital currency (CBDC).

The handbook is the direct result of a survey carried out by the BIS Innovation Hub Nordic Centre of a pool of banking regulators dabbling in the CBDC pilot. Nearly half of the respondents affirm that offline CBDCs are integral for retail versions, while the other half noted the marked advantages they offered to the financial system.

Titled “Project Polaris,” the handbook reeled out the benefits of offline CBDCs for countries gearing to launch digital iterations of their local currencies. According to the BIS, an offline functionality provides CBDCs with the resiliency and cash resemblance to trigger wide-scale adoption.

Other benefits identified by the BIS include the promotion of financial inclusion and privacy among users. However, the handbook was unequivocal in the difficulty associated with implementing the functionality, paying attention to the security and operational considerations.

“Implementing offline payment capabilities will require a deeper understanding of the technologies, security threats, risks and mitigating measures, as well as design criteria for privacy, inclusion and resilience,” Beju Shah, Head of the BIS Innovation Hub Nordic Centre, said.

Despite being a guide for central banks, the handbook stated that a one-size-fits-all approach for offline functionality would not be feasible, given the peculiarities of each country’s financial system. Central banks are urged to conduct in-depth studies of their local ecosystems to make an informed decision on their offline CBDC system.

The handbook provides central banks with a detailed explanation of the available technology required to embed the offline capabilities and issued design criteria for risk management. On the regulatory side, the handbook offers insights for central banks regarding the planning, business requirements, and procurement activities regarding the operation of an offline CBDC.

Already being tinkered with by CBDCs

Several central banks are already probing CBDC functionality to close the yawning gap between them and privately issued payment mechanisms. The Bank of Canada revealed a staff analytical note that divided the offering into shorter internet disconnectivity and extended periods without an internet connection.

In shorter periods, the payee claims a portion of the user funds with the CBDC system settling the transaction when parties are online. Longer periods without an internet connection pose a technical challenge for the Canadian central bank requiring a “distinct ecosystem supported by dedicated devices.”

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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