E-Purses & Offline CBDCs

As CBDCs continue in development, one issue that is now appearing is how to deploy them offline. How do you make CBDCs useful for someone for whom connection to the internet or the presence of electricity is problematic?

I see two ways to solve this problem: connected banknotes or electronic purses (e-purses). I have spoken about connected banknotes aka hybrid banknotes, smart banknotes, and cryptobanknotes elsewhere. E-purses are value storage cards that can hold and transfer digital money via NFC and thus do not require internet or outside electricity. This makes them a viable alternative for offline CBDC use. However, there are problems with this technology, which I will summarize.

First is cost. E-purses, in a best case scenario, will cost at least $1 each if produced in the millions of units. The cost will probably be much higher.

Second is technology. The durability of the units is unknown, leading perhaps to high replacement rates. The cards required periodic charging, which is a problem in areas with spotty electricity. The cards require chips that can be hacked and need to be sourced internally. (How many countries will want Chinese chips in their CBDC purses?)

Third is user adoption. E-purses first appeared in the 1990s. (The latest incarnation is pictured.) The early e-purses were the Mondex card and system (UK) and the Avant card (Finland). Neither of these e-purses could gain popular adoption. Part of the problem was that they required a lot of user maintenance, especially by people who were not tech savvy. I see this problem repeating itself.

Beyond these three problem areas, there is the question of privacy. One Bank of Canada article argues for expiration dates for CBDC held in e-purses. This, it says, would allow offline users to recover money on lost or defective cards. However, this would require a lot of security information from the e-purse holder, which, the article admits may lead many to avoid the cards in the first place.

For these many reasons, I am doubtful about the future of e-purses for offline CBDC use.