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The Bank of England has found that making offline payments with a potential digital pound is viable, but that a number of issues, including financial crime risks, will need to be addressed.
In a new report, the central bank has concluded that offline payments through its central bank digital currency (CBDC), should it issue one, would be final and irrevocable, but with trade-offs.
It has flagged a range of unresolved security, performance and user experience challenges that would need further investigation before offline payments could become a possible feature of the UK CBDC.
The findings come from a technical experiment exploring whether offline transactions, which do not require a connection to the internet or the central ledger, could be made secure, final and irrevocable using current technology.
This experiment builds on a Technology Working Paper issued alongside the Bank of England and HM Treasury’s 2023 consultation on the digital pound.
Benefits and weaknesses
The Bank of England described offline CBDC functionality as potentially supporting broader policy goals such as resilience and financial inclusion.
However, it acknowledged a “heavy reliance” on secure elements and warned that delayed online reconciliation could leave users exposed to undetected fraud.
For example, the project demonstrated that users could send and receive funds offline by storing CBDC balances on smartphones or smart cards.
These payments were settled instantly, allowing recipients to reuse funds immediately without going online.
However, the requirement to pre-load offline balances raised usability concerns, especially in scenarios involving unexpected connectivity loss.
In the experiment, two types of payment flows were tested: synchronous and asynchronous.
The former required real-time interaction between both parties’ devices, while the latter enabled more flexible transfers, such as via QR codes or SMS, but carried the risk of funds being irretrievably lost if a payment was not claimed.
Financial crime issues
Financial crime risks also surfaced in the Bank of England’s findings.
With no real-time ledger connection to verify transactions, offline payments pose heightened risks of double spending and counterfeiting.
The central bank tested several mitigation strategies, primarily relying on secure elements — tamper-resistant chips embedded in smartphones or smart cards — to store cryptographic keys and transaction data.
Although these secure elements helped prevent unauthorised access, their limited storage capacity restricted the number of transactions and the extent of fraud detection possible without reconnecting to the network.
In addition, in some instances, bogus transaction identifiers could not be fully stored, especially on smart cards with smaller memory.
Privacy
The experiment also trialled privacy-enhancing technologies to protect personal data during reconnection.
Tools such as pseudonymisation, ephemeral keys and confidential computing were employed to share transaction histories without exposing users’ identities.
The trial also explored emerging techniques such as Direct Anonymous Attestation and BIP32 to further reduce the risk of tracking or linking payments between users.
A centralised but pseudonymised data-sharing system, separate from the core CBDC infrastructure, was proposed to help intermediaries detect fraud and money laundering patterns using machine learning.
Risk mitigation tools were also implemented, including limits on offline balances, transaction values and the number of consecutive offline payments.
However, these also posed challenges, particularly on devices without internal clocks, and could lead to confusing user experiences when transactions were unexpectedly blocked.
In terms of next steps, the Bank of England said in a media statement that “our policy work on offline digital pound payments is ongoing. We expect to conduct a policy assessment to determine what these findings might mean for a digital pound.”
In addition, the central bank reiterated that the digital pound project remains exploratory, adding: “No final decision has been made on whether an offline payment functionality would be implemented if a digital pound were launched.”
