In a recent research note, Sweden’s central bank, Riksbank, sounded a cautionary note on the potential risks associated with unsynchronized data in offline payments using Central Bank Digital Currencies (CBDCs). The bank highlighted the critical importance of synchronizing offline transactions with online balances to mitigate liquidity risks and ensure the smooth functioning of digital currency transactions.
The central concern revolves around the possibility of discrepancies arising between offline and online balances when users engage in consecutive offline transactions without proper synchronization. This risk becomes particularly evident when CBDC users add funds to their offline wallets but fail to synchronize these balances with their online counterparts. As a result, recipients of CBDCs may find themselves with reduced funds due to disparities between offline and online balances.
Explaining the implications of this scenario, Riksbank emphasized that if a recipient attempts to synchronize their wallet after receiving CBDCs from an offline transaction, but the sender has not synchronized their wallet, usability issues may arise. This gap in security underscores the critical role of sender synchronization in ensuring that funds are readily available to recipients, thus maintaining the integrity of digital currency transactions.
To address these challenges, Sweden’s central bank is actively exploring potential solutions. One approach under consideration involves the establishment of liquidity pools for payments or imposing restrictions on offline CBDC usage. For instance, CBDCs received offline may only become available for offline transactions once synchronization occurs. However, the feasibility of these solutions remains uncertain pending further analysis by Riksbank.
While Riksbank recently concluded its pilot of the e-krona solution, which explored the potential for a digital currency, no decisions have been made regarding the issuance of a digital currency or the choice of technology. The central bank continues to assess the evolving landscape of digital payments and CBDCs, prioritizing the security and efficiency of financial transactions in the digital age.
