The BIS Innovation Hub recently unveiled a design guide for offline central bank digital currencies (offline CBDC) as part of Project Polaris. Several solution providers, including Google, presented their offerings to various central banks. While the BIS document does not delve into the specifics of Google’s solution, it is worth noting that Google Pay wallets already support offline transactions for card-based payments, including UPI payments in India.
Offline transactions are generally considered riskier compared to online transactions, which can be verified and monitored for issues such as money laundering and double spending. To address this, one approach is to use secure smart cards similar to prepaid cards for offline CBDC, or alternatively, require smartphones to occasionally connect to the internet.
Google Pay’s Advantage in Offline CBDC
Many CBDC solutions face challenges in gaining consumer adoption. By leveraging Google Pay’s extensive user base, central banks can reduce the friction associated with consumer adoption. Furthermore, since offline CBDC solutions are relatively new and untested, Google’s integration can provide a tried-and-tested technology, making it a low-risk option.
The objectives for implementing offline CBDC solutions may vary from one country to another. For instance, in India, where not all individuals have regular internet access, the advantage of an offline CBDC is evident. Google Pay is widely used in India and is already integrated with the Unified Payment Interface (UPI), making it a sensible option in this context.
Offline CBDC and Anonymity
Conversely, some advanced economies, such as those in Europe, view offline CBDC as a means to provide digital cash-like transactions with a focus on anonymity for smaller payments. Given Google’s data-driven business models, this focus on anonymity may conflict with the objectives of European offline CBDC implementations.
Furthermore, one of Europe’s strategic motivations for the digital euro is to reduce reliance on foreign payment providers like Visa and Mastercard. Whether Europe would be interested in partnering with Google Pay depends on whether it is the sole offline CBDC path or one of many.
Central Banks’ Caution with BigTech Involvement
Central banks are cautious about the involvement of BigTech companies in the financial sector. While regulators previously blocked Facebook’s Diem stablecoin, as it was perceived as a direct threat to central bank authority, central banks may still be hesitant to rely on technology from a BigTech company. They are naturally wary of fostering monopolies or oligopolies, as some commercial banks are already considered “too big to fail.” Despite these concerns, the network effects associated with payment systems make avoiding such technology partnerships almost unavoidable.
