The BIS Innovation Hub has published a manual on offline central bank digital currency (CBDC) payments that explores the motivations, risks, and possible solutions as part of Project Polaris. It is generally accepted that offline CBDCs pose higher risks than an online version because double spending and counterfeiting are easier in the absence of online checks. However, these are not the only risks.

The document also highlights the challenge of business models that make an offline CBDC attractive to both merchants and consumers.

There are some interesting statistics from the central bank survey. 49% of central banks believe that offline functionality is essential for a CBDC and another 49% see it as advantageous.

When it comes to privacy, all central bankers see an offline version of a CBDC as having at least as much privacy as an online one, with 44% expecting it to have elevated levels of privacy, closer to cash. However, they are concerned about money laundering risks.

Privacy came in as number five on a list of 11 motivations that we suspect were in order. At the top of the list is ensuring payments resiliency as reliance on digital payment systems increases. However, the duration of an interruption is an important factor to consider in the design. For example, some solutions may allow cash to only go through two or three hops before verification is required. That might not work for an outage of days.

The second factor is cash likeness, such as the ability to load cash offline from an ATM. However, complete anonymity is unlikely to be achieved. Rounding out the top five offline CBDC motivations is the ability to enable financial inclusion and digital inclusion without the need for smartphones and address the lack of reliable internet connection in some regions.

While this manual is comprehensive and runs to nearly 120 pages, the Bank of Canada released a document in February on different types of offline CBDCs. Unsurprisingly given the tsunami, Japan was one of the first to explore the issues, and Visa has published an article as well.