Weeks after finalizing the joint project with the central banks of Sweden, Norway, and Israel, analyzing the advantages and challenges of using central bank digital currencies (CBDCs) in international payments, the Bank for International Settlements (BIS) has released a handbook on their offline use.
As it happens, the BIS Innovation Hub Nordic Center, in partnership with Consult Hyperion, has published a guide that studies key aspects of how CBDCs could work for payments in situations and environments where there is no internet connection, according to a BIS press release from May 11.
Purpose of BIS recommendations
Specifically, the guide, titled ‘Project Polaris,’ defines an offline payment “as a transfer of value (CBDC) between devices that takes place without requiring connection to any ledger system. This could be due to a system outage or in the absence of internet or telecommunications connectivity.”
In this context, the handbook aims to assist central banks to begin work on the implementation of CBDCs in their offline operations, depending on various considerations, such as location, demographics, and other specific factors. As Beju Shah, the Head of the BIS Innovation Hub Nordic Center, explained:
“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.”
What does BIS recommend?
For instance, the guide states that “a central bank should identify how offline payments with CBDC could support relevant policy objectives, such as inclusion or payment system resilience,” as well as “its risk tolerance and approach to risk management, how to handle cases of lost value, and the balance between privacy objectives and those for AML/CFT.”
Furthermore:
“The roles and responsibilities of the actors involved in a CBDC payments ecosystem in supporting offline payments should be clearly defined. Collaboration between the public and private sector would be necessary.”
Other recommendations include taking a risk-based approach from the earliest stages of CBDC design, using tamper-proof hardware and/or software, leveraging existing technologies and infrastructure where possible, and providing “reliable, easy to use, convenient, and widely accepted” solutions to everyday users.
CBDCs and crypto
Elsewhere, the cryptocurrency community has widely criticized the introduction of CBDCs as an effort by governments and central banks to impose strict financial control, as well as spy on their citizens, as the space is currently under a wide-reaching attack in the United States by the agencies such as the Securities and Exchange Commission (SEC).
On the other hand, the Bank of America (NYSE: BAC) believes CBDCs could revolutionize global financial systems and may even “be the most significant technological advancement in the history of money,” while the European Central Bank (ECB) president has admitted that a digital euro would be used in a ‘limited’ way to control the payments that individuals can make.
In the meantime, the International Monetary Fund (IMF) has announced the release of its own handbook for countries exploring the introduction of CBDCs, as announced by the organization’s Deputy Managing Director, Bo Li, on April 12.
