The Bank of Canada published a research note on the use of central bank digital currency (CBDC) for offline payments. These types of payments are more like physical notes and coins than digital currency.

Various scenarios lead to the need for an offline CBDC. For example, it could be a temporary lack of Internet access, such as during a flight or due to a telecommunications interruption. This use case is known as intermittent offline CBDC.

Alternatively, there could be a longer-term need for internet-free payments, necessitating an extended offline CBDC. That could apply in a remote area, a weather event, or a natural disaster.

A user who is intermittently offline can make a payment while temporarily offline, but the recipient can only spend the funds once Internet access confirms that it is a legitimate transaction.

By contrast, an extended offline CBDC relies on hardware devices for payment security rather than the Internet. That means that even if the coin is received offline, it can be spent again. This type of CBDC could use hardware security on smartphones or special devices.

Both avenues create additional risks, especially the extended offline CBDC. If one type of hardware device is compromised, that could result in a loss of money for many people. As a result, users will likely be warned about the risks and there will be restrictions on the amount of CBDC held and transaction values.

One topic we haven’t seen fully covered is how one prepares for an unpredictable but prolonged offline event, such as a natural disaster. It is conceivable to prepare merchants to distribute a CBDC offline, but most people will not be able to digitally access their money to exchange it offline. For now it is probably less urgent because there are still considerable amounts of cash in circulation. However, it will be urgent in the near future.

It is also conceivable that offline CBDC could provide a level of privacy more similar to cash.

Interest in offline CBDCs seems to be accelerating. The Nordic branch of the BIS Innovation Hub recently launched Project Polaris, which is looking for providers of offline CBDC solutions. IDEMIA recently won an award for its offline solution at the G20 CBDC Techsprint. Visa and the Bank of Japan have previously published papers on the subject.