Bank of Canada believes offline CBDC could boost financial inclusion

Bank of Canada believes offline CBDC could boost financial inclusion

The Bank of Canada believes an offline Central Bank Digital Currency (CBDC) would help to boost financial inclusion.

As governments around the world explore the possibilities of CBDC, the Bank of Canada believes an offline CBDC would give people greater options for offline payments. It stated that while there has been a range of innovations with online payments, offline payments have remained stagnant with bank notes still the only comment method.

Instead, an offline CBDC would allow two users to transact while neither of them is connected to the internet. It believes this could reduce frictions between payment methods and allow for funds to be spent online when connectivity resumes. In addition to this, the Bank of Canada believes offline functionality would offer users enhanced resilience, greater security and privacy and increased accessibility.

In a report, the Bank of Canada offered two types of offline CBDC functionality. These are intermittent and extended offline. The former would see a payee lay claim to a portion of the payor’s CBDC funds and lock them away from being spent. When the payee or payor resumes connectivity with the online system, the transaction would be completed.

The extended offline system would allow peer-to-peer transactions without any internet connection. The funds are settled at the end of the transaction and ensure the payee is the sole owner of the funds. It added, “Funds are also transitive—the payee can spend them in a follow-on transaction without waiting to send or receive an update from the remote service. Users could use an extended offline solution as a primary financial vehicle for day-to-day transactions.”

As to how the offline CBDC could improve financial inclusion, the Bank of Canada stated they will help those who lose connection. Whether this is based on their location, brief satellite outages or a lack of reliable internet access.  

It said, “During extended periods with no internet connectivity, which could be the result of severe weather or other adverse conditions or a lack of accessible or affordable internet, a user could rely on an extended offline CBDC system to make payments.

“For example, a user in a remote region with limited internet connectivity could use a CBDC to make purchases at the point of sale. Another user might prepare for an ice storm by obtaining a CBDC while connected to the internet and storing it offline long-term, to be used later if needed.”

However, the Bank of Canada was aware that the offline CBDC could be manipulated by malicious actors. It suggested they might try to increase funds without permission, spend the same funds twice, duplicate devices or modify limits.

Earlier in the month, The Reserve Bank of Australia (RBA) announced a collaboration with the Digital Financial Cooperative Research Centre (DFCRC) on a research project to explore potential use cases of CBDC in Australia.

Read the full report here.

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