Can Central Bank Digital Currency Work Offline?
A Central Bank Digital Currency (CBDC) is being envisioned to replace a major percentage of cash transactions across the world. China, for example, is very close to being a cashless society1. As a result, banks are shutting down their branches and discouraging cash deposits and withdrawals in China, to encourage the use of the Chinese Digital Yuan. As and when the CBDCs across the countries launch and start replacing cash transactions, the dependency of a country’s trade and economy shall increase on retail CBDC transactions, and in such a case, a power outage or loss of contact with the ledger, can bring the economy to a still. Therefore, as a backup, CBDCs should also have the capability to transact offline. This functionality shall make Retail CBDC transactions similar to cash transactions. Problem Statement – What is Exactly an Offline Retail CBDC Payment? A transaction is defined as an offline transfer if: An offline CBDC ecosystem consists of a Central Authority, a bank, a merchant, and a spender. The model proposed by VISA3, works on a Two-Tier Hierarchical Model where the Central Bank, authorizes a bank or a financial institution to provide a cryptographic key to the digital wallets held by the payee and payor. These digital wallets hold balance that is either transferred from the bank account or Central Bank directly. Accessing a digital wallet and moving money from one digital wallet to another requires an individual to be present online. However, to move money offline, in the absence of an intermediary bank, and during a temporary network outage, an Offline Payment System (OPS) is required. To put it in simpler terms, Individual A holding Digital Wallet A should be able to transfer money to Individual B holding Digital Wallet A/B (Where A and B are different Digital Wallet Providers), without having to involve Bank or Digital Wallet provider, when the network is temporarily not available. Before understanding the offline retail CBDC transfer, it is important to understand how retail CBDC works. Offline CBDC transfer works best with Token Based Retail CBDC transfer, where the actual movement of tokens takes place from the spender/payor to merchant/payee. How Does Offline CBDC Transfer Work? The smartphone and tablet’s secure hardware has the capability to store authentication keys and is next to impossible to tamper with the information saved in it. It can only be accessed using strong authentication techniques like biometrics. Therefore VISA in its study4, recommends the use of Mobile/Tablet’s hardware as a store for CBDC funds, offline. Further, as per IMF5 Giesecke+Devrient is working on storing offline CBDC in an offline smart card. Steps Involved in Offline CBDC Transfer Initialization The first step to facilitate an Offline CBDC transfer is to register and get an authentication key for the digital wallet, smartphone/tablet’s secured hardware, or smart card. The user shall need to share his/her documents for KYC with the financial institution authorized by the Central bank to issue the authentication certificate key for the digital wallet, smartphone/tablet’s secured hardware, or smart card. These, thereafter become, trusted entities and can participate in the offline CBDC transfer. This is a one-time process. Withdrawal The user then needs to transfer the retail CBDCs from his/her digital wallet to a smartphone/tablet’s secured hardware, or smart card. This means, that the user is transferring retail CBDC from his online digital wallet balance to the smartphone/tablet’s secured hardware, or smart card’s offline CBDC balance. Payment When the user goes to a merchant to purchase, the merchant using the Mobile app or POS creates a payment request for the user. Since the network is not available, the payment request generated by the merchant, using Near Field Communication (NFC) or with the help of POS, presents the payment amount and merchant’s certificate to the user’s smart card or smartphone/tablet’s secured hardware. The Offline Payment System Protocol (built-in smart card and smartphone/tablet’s secured hardware), checks the user’s offline CBDC balance and thereby deducts it and creates a Payment Message for the merchant which contains: On presenting the Payment Message to the merchant’s mobile application or POS, the validity of the user’s certificate, CBDC coin unique identification number, the unique transaction number, and payment amount are validated. If all checks are successful and authenticated, the Payment Message is stored in the merchant’s smartphone/tablet’s secured hardware, or offline smart card. Deposit After the Payment Message is stored in the merchant’s smartphone/tablet’s secured hardware, or offline smart card, he/she can thereafter transfer it to their digital wallet, when the network is resumed. While initiating the transfer, the digital wallet shall check if the payment message is new and was not previously encashed. On successful verification, the amount gets transferred to the merchant’s digital wallet and starts reflecting as an online CBDC balance. In case, if the network outage is for a longer duration, and the merchant, has huge offline Payment Messages stored with him, he/she can use already stored Payment Messages to make offline payments for his purchases. This shall act as an incentive for the merchant to remain cashless even during a network outage What are the Challenges of Offline CBDC Payment in Absence of a Network? Double Spend In the absence of a network, while doing an offline retail CBDC transfer, the transactions rely on the transfer of messages. If a single retail CBDC coin, is mischievously used simultaneously for 2 transactions for two different merchants, it is referred to as a ‘double spend’. The problem with ‘double spend’ is that when the network resumes, and the merchant tries to settle the offline retail CBDC coin, it makes the CBDC coin unavailable for the second merchant as it is already settled by the 1st merchant and hence fails the purpose of the offline payment. How to tackle the problem? When the merchant sends a payment request to the payor, on successful verification, the offline CBDC balance is deducted from the payor’s smart card or smartphone/tablet’s secured hardware, and a log is created with the CBDC coin’s unique identification number
[Stablecoins Report] The Development of CBDCs Worldwide and in Vietnam – Part 4
Amid the rapid development of stablecoins and cryptocurrencies, many countries have begun researching, piloting, or deploying Central Bank Digital Currencies (CBDCs) to maintain the central bank’s dominant role in the monetary system. About CBDCs – Central Bank-Issued Digital Currency Central Bank Digital Currency (CBDC), often referred to as the digital money of the central bank, is a new form of central bank-issued legal tender in digital form. CBDCs use national units of account and are backed by central bank reserves. They are officially recognized and legitimized by central banks. CBDCs are introduced with the following objectives: Depending on their economic, technological, and financial conditions and strategies, countries have adopted different CBDC deployment models. The three main models are: Global CBDC Deployment According to the latest 2024 data from the Atlantic Council, 134 countries—representing 98% of global GDP—are exploring CBDC issuance, a fourfold increase from just 35 countries in May 2020. Among them, 66 countries have entered the development, pilot, or launch phases. Additionally, a BIS survey of 25 developed economies and 56 emerging/developing economies (covering 76% of the world’s population and 94% of global GDP) shows that over 90% of central banks are researching CBDCs, 62% have begun technical trials, and 26% are conducting pilot programs. Below are some notable countries that have piloted or implemented CBDCs: Bahamas Bahamas was the first country to officially launch a CBDC, the Sand Dollar, in October 2020, following pilots in the Exuma and Abaco islands in 2019. The Sand Dollar aims to improve financial inclusion, especially in remote areas where traditional banking services are inaccessible. The system uses Distributed Ledger Technology (DLT) developed by NZIA, a DLT and blockchain solution provider based in the Bahamas. It includes features like offline payments and transaction limits for lower-tier accounts to enhance security. After a hurricane in 2019, the Sand Dollar was deployed in Abaco to support economic recovery, highlighting the role of CBDCs in financial stability during crises. However, its adoption faces challenges due to uneven technological infrastructure and limited public acceptance. Nigeria Nigeria was the first African country to launch a CBDC, the eNaira, in October 2021. Although it aims to enhance financial inclusion and reduce transaction costs, eNaira adoption has been low—according to the IMF, by 2023, 98.5% of eNaira wallets had never been used. Key barriers include weak infrastructure, lack of public trust, limited product understanding, and competition from cash, mobile wallets, and cryptocurrencies. Despite this, the circulation of eNaira grew from 2.55 billion to 12.53 billion naira (around USD 8 million) by early 2024. The Central Bank of Nigeria (CBN) has started partnering with tech firms like Gluwa to improve infrastructure and plans to reassess its rollout strategy in 2025 to boost practical use. China China leads one of the largest-scale CBDC deployments with the e-CNY (digital yuan). Since 2020, e-CNY has been piloted in over 20 major cities and integrated into popular apps like WeChat and Alipay. A standout feature is offline payments, allowing transactions without internet access—crucial in remote areas. China uses a hybrid technological architecture, applying DLT only where beneficial. The country is also testing cross-border CBDC payments via the mBridge project with Thailand, the UAE, and Hong Kong. e-CNY is now accepted in retail stores and used for salaries and government benefits. However, as of May 2024, its cumulative transaction volume reached USD 910 billion—still modest compared to China’s total payment market of USD 40.3 trillion. Public concerns about surveillance have slowed widespread adoption, highlighting the need for privacy protections when implementing CBDCs. India The Reserve Bank of India (RBI) began piloting its retail digital rupee in four cities in late 2022. As of now, the rCBDC program has about 5 million users and has integrated standard QR codes for interoperability with other payment methods. Efforts are underway to introduce key features, including trials for usage in rural and remote areas. CBDCs are seen as tools for instant payments, reduced cash printing costs, and improved cash flow transparency and management. However, concerns remain over privacy, cybersecurity, and the impact on commercial banking systems. CBDC in Vietnam Vietnam has not issued a CBDC yet but has shown clear strategic interest. Since 2017, the Vietnamese government has introduced measures to manage the growing use of digital currencies through various regulations on digital assets, virtual currencies, and digital money. This effort has continued to evolve. In 2021, Decision No. 942/QĐ-TTg by the Prime Minister approved the strategy for developing e-government toward digital government, assigning the State Bank of Vietnam (SBV) to research and pilot CBDC from 2021 to 2023. In 2023, Resolution No. 50/NQ-CP emphasized the development of fintech, including blockchain and digital currency applications. SBV has formed dedicated research teams and collaborated with international organizations to explore suitable CBDC models. At the 5th Annual Meeting of the 7th Term of the Vietnam Banks Association on March 27, 2025, SBV Deputy Governor Pham Tien Dung announced Vietnam’s upcoming pilot of a digital asset trading platform. He emphasized the banking sector’s key role in protecting consumers, settling transactions, and ensuring the stability of stablecoin values. Additionally, the Ministry of Finance has submitted a draft resolution on piloting digital asset issuance and trading to the government. The plan includes coordination with the Ministry of Public Security and SBV to both foster market development and mitigate risks to financial security and monetary stability. According to Decree 94/2025/NĐ-CP on the regulatory sandbox for the banking sector, from July 1, 2025, the government will allow testing of new fintech-based financial products and services, including credit scoring, Open API data sharing, and peer-to-peer lending. These trial results will help regulators finalize a legal framework for fintech in Vietnam. This is a promising sign, paving the way for financial technology and digital currency development. CBDCs are an inevitable step in the global trend toward monetary digitalization. As seen in the case studies, there is no one-size-fits-all model for CBDCs. Each country must tailor its approach based on its specific economic and monetary conditions. While Vietnam has not yet issued a CBDC,