Google (NASDAQ: GOOGL) and the Bank for International Settlements (BIS) are pitching plans for an
offline central bank digital currency (CBDC) to banking regulators around the globe.
The BIS, in its design guide for offline CBDCs, described the functionality as a “complex undertaking”
requiring extreme diligence by central banks. The BIS guide, published as part of Project Polaris,
remarked that launching offline capability for CBDCs will require a tailor-made approach,
given the distinct nature of payments in different jurisdictions.
“The ability to pay when offline continues to be a priority for many central banks in their exploration of CBDC,
” said Beju Shah, Head of Nordic Center, BIS Innovation Hub.
“This guide builds on the foundational work of the offline handbook, providing central banks with greater depth
on the myriad choices required to design offline payments capabilities for CBDC systems.”
To carve out a sustainable approach, the BIS onboarded several vendors to pitch offline CBDC strategies to central banks,
with Google participating in the process. However, the document did not shed light on the technical standards of Google’s plan,
leaving room for pundits to theorize over the Big Tech’s blueprint.
One theory suggests that Google could rely on the offline payment capabilities of Google Pay wallets that have
seen real-world applications in India. Users of the platform are allowed to make several offline payment transactions,
but the functionality requires intermittent internet connectivity for a seamless operation.
In the long-term absence of internet connectivity, the theory faces several challenges when applied to CBDCs,
prompting a second theory. Analysts are tinkering with the use of prepaid cards loaded with CBDCs,
leveraging near-field communication (NFC) to process offline payments.
While this offers several benefits, it remains to be seen if users will pre-load CBDCs into cards in
anticipation of an absence of internet connectivity. However,
all sides of the party have reached a consensus that leveraging Google’s Pay existing user base is
a veritable strategy for CBDCs to compete with existing payment options.
Standard Chartered (Hong Kong) recently concluded an offline CBDC pilot with remarkable
successes in “small value, but high-volume transaction environments.”
The Australia and New Zealand Banking Group (ANZ) also recorded impressive results in an
eight-week pilot at Southern Cross University.
BIS makes key recommendations
In its report, the BIS pointed out key recommendations for central banks to follow in their quest
for offline CBDC capabilities.
The paper pushed for greater collaboration between central banks and technology providers
while advocating for custom-made CBDC designs.
“Trade-offs will exist between different requirements. For example, a high level of privacy could affect how
suspicious actions in the system are detected and countered,” the BIS stated.
“To overcome this, central banks can take an iterative approach to design, exploring alternative ways to achieve their objectives.”
Central banks are further advised to pay special attention to the security needs,
risk management requirements, and resilience of their local financial ecosystem before
choosing an offline CBDC strategy.
To learn more about central bank digital currencies and some of the design decisions that need to be
considered when creating and launching it, read nChain’s CBDC playbook.