BIS releases guidance on building an offline CBDC payments network

Central Bank Digital Currencies Offline Payments

The Bank for International Settlements (BIS) has released new guidance for banks and payments developers considering implementing an offline payments capability for Central Bank Digital Currencies (CBDCs).

The BIS defines an offline payment “as a transfer of value (CBDC) between devices that takes place without requiring connection to any ledger system”, in many cases due to the absence of internet or telecommunications connectivity.

An offline payments capability offers a number of advantages for payments networks, the BIS said, with the potential to increase the resilience of existing digital payments systems (e.g. enabling it to operate for a period of time without internet or telecoms connectivity), support digital economy inclusion objectives (e.g. enabling those without access to smart devices to access the payment system), lower transaction costs, reduce the overall load on the ledger system, and more easily facilitate digital peer-to-peer payments.

Based on its assessment of historical offline payments systems, the BIS, as part of its guidance, flagged points of consideration for those entities seeking to implement a CBDC-based offline payments network.

Among these recommendations include a need for network builders to create tamper-resistant purses and cryptographic protocols that enable payments-making devices to mutually authenticate themselves and exchange payment instructions securely, the need for the protection of master cryptographic keys, and an improved user experience that takes advantage of smartphone interfaces.

ANZ Bank, in partnership with RMIT and Southern Cross universities, is currently piloting an offline CBDC payments solution on a blockchain ledger.

The trial is investigating the use of an NFC-enabled smart card that enables users to make instant, peer-to-peer payments, even in an offline environment that is not connected to existing banking infrastructure.

Central banks around the world, including the Reserve Bank of Australia (RBA), are actively exploring use cases and the feasibility of implementing a CBDC – a digital currency, issued by a central bank, and typically pegged to a national currency. However, with currently no widescale adoption of CBDCs (beyond a handful of Caribbean countries), Australia alongside its OECD counterparts as yet have no set timeline for the implementation of a CBDC.

Beju Shah, head of the BIS Innovation Hub Nordic Centre said the new handbook provides central banks a starting point to implement an offline-capable CBDC payments network, adding that such networks serve multiple objectives.

“CBDC systems, like all digital payment systems, must work for everyone in society, whenever and wherever individuals and businesses need them.”

“The ability to pay when offline could ensure this is achieved by providing a layer of resilience, as well as supporting inclusion, accessibility and privacy objectives.”

“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.