CBDCs Need To Function Offline Former IMF Official Believes

John Kiff, a former Official of the International Monetary Fund (IMF), shared his opinions that Central Bank Digital Currencies (CBDCs) will be used offline to be adopted globally. He also asserts that this technology already exists in the form of stored-value cards since the 90s.

Regarding Central Bank Digital technology, internet connectivity is one of the most pressing issues. John Kiff points out that nearly all the current research and testing has been focused on internet-based technologies.

Additionally, a movement to develop offline payments for digital currencies has been going on for a long time, even before the smartphone age. There are also precedents for this movement. It first started in the 1980s and 1990s when people used tech to deal with paper money transactions.

The Earliest Methods Of Offline Payment

Back in 1993, a Finnish bank developed its own offline pay system called Avant for use with an accompanying card reader device. In 1995, another bank in the United Kingdom (National Westminster) attempted something similar by testing out a program known as Mondex.

However, both banks’ attempts at launching these payment platforms failed due to a lack of interest from merchants. Plus, these systems only allowed for peer-to-peer transactions when accessed through special devices.

Various organizations have debuted updated versions of the Avant and Mondex ideas that can process offline payments. Users can quickly enter or scan a credit card without having internet access by using near-field communication (NFC) to conduct transactions.

While reducing the cost of the device and doing away with the requirement for an internal battery, some use intermediate devices like mobile phones or web connections to conduct transactions.

Testing An Offline CBDCs Platform

The Bank of Ghana is testing an offline CBDCs platform based on a stored-value card with a German banknote company, Giesecke+Devrient.

This method requires an intermediate device but can configure itself endlessly to account for continual periods of offline activity. Furthermore, anyone can utilize the eCedi so long as they own a contactless smartcard or mobile app wallet (which does not require internet access).

Nevertheless, in Mr. John Kiff’s opinion, “Offline devices typically rely on tamper-resistant hardware to maintain integrity. Policy constraints, like limits on transaction amounts and balances, need to be protected because modifying them could allow the misuse of funds.”

He also believes these limitations are essential for upholding laws governing financial integrity. Suspicious transaction detection may be made possible via on-device analytics or routine synchronization with a reliable verification service.

Furthermore, the Bank of Canada is looking at universal access devices. Those devices include cash-like characteristics and shield digital transactions from being halted in the event of an infrastructure breakdown. In addition, the European Central Bank is considering offline functionality in its exploratory work on a digital euro.

“Whether any of these ideas will go into full operation is an open question, but it does seem that in many regions, offline access may be a make-or-break feature for central bank digital currencies,” according to Mr. John Kiff.

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