Technology Solutions to Support Central Bank Digital Currency with Limited Connectivity: A Review of Existing Approaches (IMF Fintech)

Summary

• In a 2023 BIS survey, almost all surveyed central banks reported considering offline CBDC payments to be vital or advantageous.p.7
• Early offline stored-value payment experiments include Finland's Avant card launched in 1993 and the Mondex project initiated in the UK in 1995.p.10
• Recent smartphone NFC offline payment pilots include Crunchfish's regulatory sandbox testing in India starting in 2022 and Bank of Korea's project in 2022.p.11
• M-Pesa was launched as an SMS-based mobile payment system in Kenya in 2007 before incorporating a USSD menu interface in 2020.p.14
• The Central Bank of Uruguay tested the e-Peso digital currency using USSD protocols from November 2017 to April 2018.p.14
• The Central Bank of Nigeria introduced the eNaira in 2021 and added USSD access for unbanked users in 2022.p.14

Key insights

1. Offline CBDC implementation options span a full spectrum from complete non-connectivity to feature phone access using cellular SMS and USSD protocols.p.7
2. Offline payment system architectures are categorized into staged, intermittently offline, and fully offline models depending on online ledger reconciliation requirements.p.8
3. Stored-value cards and device-to-device short-range connectivity options like NFC and BLE allow value transfer without real-time internet connections.p.9
4. Standard GSM channel encryption protocols like A5/1 are considered weak, requiring application-layer encryption for secure SMS and USSD financial transfers.p.18
5. Offline payment solutions manage financial and fraud risk exposure by imposing strict balance caps, transaction limits, and maximum consecutive offline hops.p.19
6. Hardware-based secure elements and trusted execution environments offer superior physical tamper resistance compared to software-based secure solutions.p.21
7. Virtual secure elements lower deployment costs and ease app-based remote updates across consumer smartphones, though they remain more exposed to cyber threats.p.21
8. Offline payment systems face double-spending and rollback risks where attackers attempt to restore previous wallet states to reuse digital funds.p.22
9. Integrating privacy-enhancing technologies like zero-knowledge proofs and blind signatures can provide cash-like transaction privacy while satisfying regulatory oversight.p.28