Ripple: Making offline payments with CBDCs will be possible – will it be based on XRP or ODL? Report

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• • This handbook discusses offline payments with CBDC (central bank digital currency).
  • The motivations for enabling offline payments with CBDC include resilience, cash resemblance, inclusion, lack of communications infrastructure, privacy, lower transaction costs, performance and scalability support, universal access, civil contingency, and trust.

Reasons for Offline Payments with CBDC

Offline payments with CBDC can serve various purposes, as identified in the survey conducted alongside the development of this handbook. Central banks have outlined several primary goals for enabling offline payments, including financial inclusion, resilience, and cash resemblance. Additionally, specific local factors such as low network connectivity or disaster recovery have influenced the need for offline payment capabilities.

Motivations for Enabling Offline Payments

• • 1. Resilience: The increasing reliance on digital payment systems necessitates a resilient payment infrastructure. Offline payments can provide a layer of resilience to ensure uninterrupted transactions, even during connectivity outages.
    2. Cash Resemblance: Offline payments with CBDC aim to replicate some features of physical cash in the digital space. By loading funds into a digital wallet similar to loading physical currency into a wallet, users can experience familiar aspects of cash transactions. However, complete anonymity may not be achievable in practice.
    3. Inclusion: CBDC’s role in promoting inclusion extends beyond financial inclusion to encompass social and digital inclusion. Offline payments cater to individuals who lack access to mainstream options like smartphones or internet connectivity.
    4. Lack of Communications Infrastructure: Many regions, both in advanced and emerging economies, suffer from limited or unreliable internet or network connectivity. Offline payments address the need for payment options in areas with infrastructure limitations.
    5. Privacy: Offline payments are often associated with cash-like privacy and anonymity. Disconnected from a ledger system, offline CBDC payments can potentially offer increased privacy. However, privacy must be balanced with anti-money laundering and know-your-customer requirements.
    6. Lower Transaction Costs: Enabling offline payments with CBDC could foster competition and potentially reduce transaction costs, particularly for small-value transactions. However, the implementation and maintenance costs of offline infrastructure should be considered.
    7. Performance and Scalability Support: Offline payments can alleviate the load on ledger systems, especially for use cases involving micropayments or small transactions. By providing an alternative processing route, offline payments contribute to scalability.
    8. Universal Access: Cash is currently the only universally accessible form of payment in many countries. Offline CBDC payments ensure that all individuals have equal access to payment options and support inclusion objectives.
    9. Civil Contingency: In scenarios like cyber attacks, natural disasters, or conflicts, established infrastructure and network connectivity may be disrupted. Offline payments with CBDC enable continued functioning of the payments ecosystem when other electronic payment methods are unavailable.
    10. Trust: Supporting offline payment capabilities enhances public trust in the CBDC system. A reliable and available CBDC system, accessible both online and offline, instills confidence among users.
    11. P2P and P2B Payments: Offline payments facilitate direct value exchange between individuals and businesses, mirroring the ease of cash transactions with minimal intervention from third parties.

By considering these motivations and factors, central banks can design and implement offline payment capabilities to enhance the accessibility, resilience, and functionality of CBDC systems.