Today’s payment system is so reliant on digital, online networks, that it would be easy to forget the earliest form of money – cash – requires no internet connection to use it. This is what makes cash unique to other forms of payment mechanisms. I could be anywhere in the world, without internet access or electronic devices, and still be able to transact in cash. Physical money enables us to engage in direct commerce without the need for online banking, and is therefore fundamental to financial inclusion.

We know that many central banks are exploring the creation of a digital currency, and it is vital that any CBDC can fully replicate the ability of physical money to work offline. Stored via an app or smartcard, users could add money to the offline CBDC wallet via their online CBDC account, in the same way you would withdraw cash from an ATM. This would enable users to make transactions without access to the internet, no matter the location.

There is no ‘one size fits all’ approach to offline CBDC, with central banks exploring a range of design options. A research paper published by the Bank of England proposed that offline transactions could be done from a phone-based wallet via QR codes, NFC, or Bluetooth. The report also noted that the transport of funds could be done via SMS, which would not be purely offline, but no internet connectivity would be needed.

A new tool in the financial inclusion toolkit

The offline functionality of CBDCs will play a fundamental role in fostering greater financial inclusion, particularly for people living in areas that lack the technical infrastructure needed to remain connected, or for the percentage of the population who are unbanked.

While 90% of people in high income countries have easy internet access, this figure drops to 55% for lower to middle income countries. With the Bank for International Settlements citing offline use as the most crucial element to promoting financial access, it is paramount that central banks looking to implement CBDCs continue their research into how they can conduct secure offline transactions.

The public’s need to have offline access to CBDCs will be even greater during crises. Take Russia’s history of obstructing Ukraine’s telecommunications network, for example, which has resulted in many instances of internet access going down. Offline CBDCs would reduce the burden of physical cash in this scenario. Rather than queuing up at ATMs, offline CBDCs would enable citizens to access their funds instantly and seamlessly from their mobile phones.

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Ensuring a robust design process

While we can agree on the need for offline CBDCs conceptually, the implementation of such systems is complex. Without finding a secure solution, CBDCs could be open to digital counterfeiting or even hacks and external attacks.

To protect offline CBDC transactions from attackers and counterfeiting, banks should look at deploying strong cryptography and robust key management to protect the sensitive data being processed. These measures will not only help ensure that users can continue making offline payments, but also prevent them from spending the same money twice.

What does the future payments landscape look like?

As jurisdictions accelerate their work on issuing digital currencies, offline functionality will play a central role in design and architecture. Riksbank’s latest report on the e-krona announced that it is now progressing work into how an e-krona can be used for offline payments if electricity and telecommunications are limited or broken. In March 2024, Brazil’s central bank announced that it is are partnering with technology firm, Giesecke+Devrient, to build an offline payment solution that will enable them to support users in remote areas without internet access or electricity, or after outages and disasters.

These developments are encouraging and show that where work on CBDC issuance is accelerating, there is a strong focus on ensuring offline capabilities.

For central banks across the world who are exploring CBDCs, developing a secure and reliable digital version of cash for users, regardless of whether that person is connected to the internet, is imperative.

CBDCs can usher in a new era of faster, more efficient and interconnected payments infrastructure. To fulfill this potential at scale, this new form of money must be accessible to all.

Martin Hargreaves is Chief Product Officer at Quant