Key takeaways:
- A thorough guide has been released by the Bank for International Settlements Innovation Hub with the aim of helping central banks adopt offline CBDC.
- BIS claims that using CBDC for offline payments introduces new dangers linked to fraud, forgery, and privacy issues.
The Bank of International Settlements recently released an evaluation on how central bank digital currencies (CBDCs) can work for payments made offline through its Innovation Hub.
The Bank for International Settlements (BIS) has published this manual on central bank digital currencies’ offline use, weeks after concluding a joint project with the central banks of Sweden, Norway, and Israel that examined the benefits and drawbacks of using them in international payments.
According to the BIS Innovation Hub, there is no universal solution for enabling CBDCs to function in an offline environment. Making CBDC payments offline is a significant challenge for CBDC designers worldwide, as it involves using a CBDC without an internet connection, either temporarily or due to limited coverage.
The BIS Innovation Hub’s recent paper emphasises the difficulty of creating business models that make offline CBDC usage attractive to both merchants and consumers. To address this challenge, the handbook aims to assist central banks in implementing CBDCs for offline operations by considering factors such as location, demographics, and specific circumstances.
Beju Shah, the Head of the BIS Innovation Hub Nordic Center, states that enabling offline payments could enhance resilience, inclusivity, accessibility, and privacy goals. However, implementing offline payment capabilities requires a comprehensive understanding of technologies, security threats, risks, and necessary safeguards, as well as design principles that prioritize privacy, inclusivity, and resilience.
It is important to note that the Bank for International Settlements plays a vital role in the crypto space by providing regulatory guidance, monitoring financial stability, driving innovation, and facilitating international cooperation. Back in February, BIS also launched a Stablecoin Monitoring Project.
As per the revelations by BIS, Offline transactions using CBDCs pose concerns regarding the privacy and potential fraudulent activities related to the identification and verification of the involved users. In certain scenarios, it becomes essential for both payers and payees to authenticate the counterparty’s identity, even when face-to-face interaction is not feasible. Hence, central banks must consider such situations during the development of offline CBDC systems.
To address these challenges, it is recommended to adopt a risk-based approach right from the initial stages of CBDC design. This involves implementing tamper-proof hardware and/or software solutions to enhance security.
Leveraging existing technologies and infrastructure wherever possible can also be beneficial. Furthermore, central banks should strive to provide reliable, user-friendly, convenient, and widely accepted solutions that cater to the needs of everyday users.
