Today, Samsung Electronics and the Bank of Korea agreed to cooperate on offline central bank digital currency (CBDC) research. Offline functionality is seen by many central banks as essential for a CBDC. Offline CBDCs are seen as potentially offering greater privacy but there are question marks over the ability to use it for extended outages. The central bank is currently engaged in work with 14 financial institutions.
Samsung’s CBDC capabilities
The company has developed an offline CBDC technology based on Near Field Communication (NFC), which enables transfers and payments between mobile phones when both sender and recipient are disconnected from the internet. Modern Samsung phones include embedded Secure Element (eSE) chips to support payments.
Lee Seung-heon, deputy governor of the Bank of Korea, said the partnership will help the country “to continue to lead the field of offline CBDC technology, which is being actively researched by global central banks.”
They aim to use the technology to minimize security threats and support stable payments even in emergencies such as a days-long outage.
Offline CBDCs: challenges and opportunities
Although it is generally accepted that offline CBDCs present higher risks than online, 49% of central banks consider it an essential feature for developing a resilient CBDC ecosystem.
A recent BIS Innovation Hub handbook highlighted some of the motivations, risks, and potential solutions of offline CBDCs, pointing to the importance of heightened privacy levels and the duration of outages in design considerations. The ability to enhance financial and digital inclusion without the need for a reliable internet connection is another important driver.
Korea’s CBDC initiative
Last year, the central bank completed the second phase of its CBDC simulation study. A subsequent report noted the success of some aspects of its digital won simulations, particularly in offline payments and cross-border uses, but found performance issues with the blockchain technology.
Its current phase of work is centered around the banks, such as the ability to integrate the simulations with financial institutions’ internal systems.
The primary technology partner is Ground X, the company that founded the Klaytn public permissioned blockchain, as well as KPMG, S-core, and Zkrypto.