Canada's central bank has spent the last few years carrying out research into a digital dollar and what design features would be relevant to citizens with diverse payment needs and circumstances.

In a new staff analytical note, the bank says that while there has been huge progress in digital payments, little has changed for offline transactions, with physical money the only commonly used method that does not require an internet connection.

Researchers have been investigating two types of offline CBDC: intermittent and extended. The first would allow users to transact during shorter, intermittent offline periods when the internet is temporarily unavailable. The latter would allow for payments when an internet connection is persistently unavailable or undesirable and wold require some form of hardware.

A CBDC that operates offline is more resilient than an online version, says the note. "For example, a user in a remote region with limited internet connectivity could use a CBDC to make purchases at the point of sale. Another user might prepare for an ice storm by obtaining a CBDC while connected to the internet and storing it offline long-term, to be used later if needed."

The bank says that an offline CBDC could be designed to preserve the privacy typically associated with cash payments, thus furthering accessibility and inclusivity. This would require the CBDC to be designed to be non registered so it could be a bearer instrument with limited associated personal data.

However, note the researchers, this could make it attractive to malicious actors and require work to ensure it is compliant with legislation on illicit activities. compliant with existing legislation on illicit activities.

Bank of Canada is not the only entity exploring offline CBDC. Last month, the Nordic arm of the Bank for International Settlements innovation hub, invited technology suppliers to submit ideas for implementing offline functionality in a future CBDC.

Meanwhile, China has launched a pilot of its offline digital yuan, which takes the form of a hard wallet, resembling a typical chip and PIN credit card.

"Central banks must understand the technology underpinning any extended offline solution because they have to stand behind the devices they issue and assume the risks involved in deployment and circulation," says the Bank of Canada note.