The Republic of the Marshall Islands has launched the world’s first blockchain-based universal basic income (UBI) program, providing citizens with an annual payment of $800 funded by the country’s Compact Trust Fund. The initiative uses a U.S. Treasury Bill-backed interest-bearing stablecoin called USDM1 and a “Lomalo” digital wallet to deliver payments, particularly targeting financial inclusion for remote island populations affected by the withdrawal of traditional banking services due to “de-risking” in the Pacific region. While the program represents an innovative approach to economic sovereignty and welfare distribution, the IMF is cautioning that the UBI could drive inflation and recommending a more targeted social safety net. Also, the shift to digital wallets introduces complex regulatory risks, requiring robust anti-money laundering (AML) and know your customer (KYC) protocols. [Source: Hauzen LLP]
The IMF published a paper that examines stablecoins’ potential benefits and risks while surveying emerging international regulatory frameworks. While they offer promising benefits such as faster and cheaper cross-border payments, increased financial inclusion, and reduced remittance costs (which can reach 20% in traditional systems), they also pose substantial risks including potential runs on reserves, currency substitution that undermines national monetary policy, circumvention of capital controls, and facilitation of illicit activities. The paper emphasizes that realizing stablecoins’ potential while mitigating these risks requires coordinated international regulation and cooperation, as current regulatory approaches vary significantly across jurisdictions, creating opportunities for regulatory arbitrage and complicating efforts to monitor cross-border flows and maintain financial stability. [Source: IMF]
The Bank of England (BOE) is looking for participants to help it explore how the digital pound could impact existing companies who choose to integrate it alongside traditional payment methods in the future. This project will consist of a series of bilateral conversations with each of the different participants based the BOE’s previously published information. The aim of the study is to provide insight into where a retail digital pound could add value to different businesses, and what features are expected to be the most/least valuable for different kinds of businesses. The BOE is particularly keen to engage with companies that are interested in the digital pound, but have not yet been involved in the Digital Pound Lab. Applications are open until January 9, 2026. [Source: BOE]
Crunchfish published a paper that compares two approaches to offline digital payments for central bank digital currency(CBDC): “immediate offline mode” that transfers digital value tokens like “digital banknotes” between devices, and “deferred offline mode” that transfers signed payment instructions (IOUs) that settle later online. The paper argues that deferred offline mode is more secure (ledger remains authoritative), more scalable (software-based, no special hardware required), easier to integrate with existing payment systems (aligns with EMV and ISO 20022), and preserves banking system liquidity since funds stay in accounts until settlement. In contrast, immediate offline mode exposes the ecosystem to double-spending risks, dependence on tamper-resistant hardware, complex reconciliation, and potential destabilization of bank lending capacity. The paper recommends that central banks adopt deferred offline mode as the baseline standard for offline CBDC payments. [Source: Crunchfish]
I produce a monthly digest of digital fiat currency (DFC) developments exclusively for the official sector (e.g., central banks, ministries of finance and international financial institution (e.g., the BIS, IMF, OECD, World Bank)) plus academics and firms that are active in the DFC space (commercial banks, technology providers, consultants, etc.). (DFCs include central bank digital currency (CBDC), stablecoins and tokenized deposits.) It goes out via email on the first business day of every month, and if you’re interested in being on the mailing list, please email me at john@kiffmeister.com.
The Bank of Korea (BOK) published a working paper that examines public demand for retail central bank digital currency (CBDC) through a randomized survey experiment conducted in October 2023 with 2,879 South Korean respondents. The researchers tested five different CBDC designs varying by online/offline functionality, privacy protection features (through physical cards), and interest payment options. The key findings indicate that while CBDC design features (privacy protections and offline capabilities) do not significantly influence demand for CBDC as a payment method, offering positive interest rates does enhance its appeal as a store of value. The study finds that CBDC would primarily substitute debit card usage rather than credit cards or mobile payment apps, with overall projected usage around 28% of transactions. Trust in the central bank and willingness to adopt new technology emerge as more important determinants of CBDC demand than specific technical features. The authors recommend setting holding limits around 4-5 million KRW (EUR 3,000) to balance financial innovation against risks to bank disintermediation, as this would affect fewer than 15% of users while potentially reducing demand deposits by approximately 15-17% without such limits. [Source: BOK]
The IMF published a Fintech Note that analyzes how payment systems in fragile and conflict-affected states (FCS) face severe disruptions, from cyberattacks and infrastructure breakdowns to institutional challenges, and offers practical strategies to strengthen payment system resilience. Key lessons for policymakers include building redundancy through multisite operational architectures, leveraging distributed/cloud infrastructure and satellite networks, promoting user-centric design and digital literacy, and ensuring robust contingency planning and regulatory agility. The note finds that both cash and digital payments remain essential for continuity, with innovations in digital money, such as stablecoins and CBDC, playing emerging roles. For CBDCs, resilience depends on careful design, redundancy, offline capabilities, interoperability, and trust-building, but adoption faces operational, regulatory, and trust-related challenges unique to FCS settings. [Source: IMF]
The IMF published a Fintech Note that examines whether central bank digital currencies (CBDCs) could enhance competition in retail payment markets. The authors analyze CBDC’s potential competitive impact through four channels: pricing discipline, service quality improvements, market contestability, and financial access expansion. The analysis identifies three market scenarios with varying competitive implications. In unregulated markets dominated by private platforms, CBDC could exert substantial competitive pressure by reducing fees and lowering entry barriers, particularly if interoperability with existing systems is ensured. In markets already subject to regulatory interventions such as interchange fee caps, CBDC would likely have more moderate effects, addressing residual gaps rather than fundamentally altering market dynamics. In jurisdictions with well-functioning public fast payment systems, CBDC would offer primarily incremental benefits, mainly extending access to underserved populations. The Note emphasizes that CBDC’s actual competitive impact depends critically on design choices—including fee structures, intermediary participation rules, holding limits, and interoperability requirements—and warns that overly aggressive pricing could crowd out private providers, potentially reducing payment system resilience and diversity. [Source: IMF]
The IMF published a Fintech Note that provides comprehensive guidance for policymakers evaluating legal frameworks for central bank digital currency (CBDC) issuance, focusing primarily on retail CBDC (rCBDC) with separate analysis of wholesale CBDC (wCBDC). The authors examine how rCBDC should be legally classified as currency under public law—establishing it as a direct central bank liability with attributes including monopoly of issuance, cours forcé, legal tender status, and criminal law protections. The Note addresses central banks’ legal authority to issue rCBDC and operate payment platforms, the regulatory frameworks needed for intermediaries in two-tier distribution models, and the legal relationships between central banks, intermediaries, and users. Specific design features are analyzed, including limits on holdings and transactions, interest-bearing capabilities, programmability, and offline functionality. For wCBDC, the Note examines legal challenges related to tokenization, settlement finality, and central bank mandates to operate platforms for financial institutions. Throughout, the analysis draws on enacted laws and regulatory drafts from various jurisdictions, emphasizing that while the Note identifies legal considerations and potential approaches, it does not constitute a recommendation for jurisdictions to issue CBDCs. [Source: IMF]
The Stanford University Future of Digital Currency Initiative (FDCI) published a paper that examines the performance of dollar-based stablecoins in cross-border payments using a dataset of over 41 million transactions from Airtm, a digital dollar wallet platform, spanning May 2019 to May 2024. The analysis benchmarks transaction speed and cost against G20 Roadmap targets for enhancing cross-border payments. The findings indicate that stablecoins demonstrate substantial advantages in speed, with more than 96% of transactions settling within one hour, significantly exceeding the G20’s 75% target. Cost performance is more variable: approximately 51% of transactions meet the 3% fee target for remittances and 36.7% meet the 1% target for retail payments, though fees remain elevated for certain transaction types, particularly peer-to-peer marketplace on- and off-ramps. The study also highlights that stablecoins enable previously uneconomical use cases, with nearly half of enterprise disbursements being micropayments under $2. [Source: Stanford FDCI]
Upcoming Speaking Engagements:
The Cedi@60 Anniversary Currency Conference (Accra, Ghana, November 17-20) hosted by the Bank of Ghana, in partnership with Currency Research, will celebrate 60 years of the Ghanaian Cedi, bringing together leaders from across Africa and beyond to reflect on the currency’s legacy and chart its digital future. Learn about Ghana’s eCedi pilot and the future of sovereign digital currencies in Africa, and engage with innovators driving mobile money, QR code payments, and financial inclusion across the region. [Register here and get 15% off by using the Kiffmeister15 code!]
I produce a monthly digest of digital fiat currency (DFC) developments exclusively for the official sector (e.g., central banks, ministries of finance and international financial institution (e.g., the BIS, IMF, OECD, World Bank)) plus academics and firms that are active in the DFC space (commercial banks, technology providers, consultants, etc.). (DFCs include central bank digital currency (CBDC), stablecoins and tokenized deposits.) It goes out via email on the first business day of every month, and if you’re interested in being on the mailing list, please email me at john@kiffmeister.com.
Ulrich Bindseil posted a paper that examines the regulatory and financial stability implications of stablecoins, framing them as electronic money issued by narrow balance sheet entities onto programmable platforms. He highlights that European, U.S and U.K. regulatory approaches aim to prevent stablecoins from destabilizing the financial system, but the rules on what assets must back stablecoins diverge widely, with the U.S. favoring short-dated Treasury bills, the EU requiring bank deposits, and the U.K. preferring central bank deposits. However, all insist that stablecoins must not pay interest, a legacy from the era of paper money that does not make sense for electronic assets. The rationale appears to be protection of banks from excessive competition, based on supposed positive externalities from deposit creation and lending, yet the author argues that non-remuneration is a blunt instrument, not a well-designed response to any market failure. Opportunity costs for stablecoin holders rise with interest rates, triggering shifts to other assets, while issuers still earn intermediation margins. The author proposes that better-targeted regulation can address risks and market failures without unnecessarily distorting incentives or relying on mechanical non-remuneration, thus calling for more nuanced policy approaches. For example, Ulrich suggests targeted regulatory charges levied on stablecoin issuers, designed to offset any negative externalities or to compensate for positive externalities lost when funds flow out of banks toward stablecoins. [Source SSRN]
It is notable that the European Parliament’s draft digital euro legislation prioritizes the rollout of the offline version. It mandates that the European Central Bank (ECB) complete all technical and organizational preparations for the offline digital euro before the online version is considered. Introduction of the online digital euro will depend on a market assessment by the European Commission, which will proceed only if there is no suitable pan-European private retail payment solution that covers person-to-person, point-of-sale, and e-commerce. Both forms, upon ECB authorization, enter a minimum 24-month adaptation phase to allow payment service providers and stakeholders to adjust securely and gradually. This framework aims to avoid crowding out private sector solutions, synchronize technical standards, and ensure interoperability, with clear fee guidelines and user choice, making public sector intervention conditional and proportional to actual market needs. [Source: European Parliament]
The draft legislation also requires that offline transactions resemble the anonymity of physical cash. Payments are conducted directly between devices, without reliance on central infrastructure, so payment service providers do not process or record any personal data linked to individual transactions. Only minimal information needed for funding or defunding the device—such as device identifiers—is handled, and no monitoring or tracking of payment activity occurs during offline use. Robust safeguards will be required to prevent the identification of users through device registration, mandating that only the data strictly necessary for regulatory compliance is processed and never used for profiling or tracing specific transactions. As a result, offline digital euro payments would be highly privacy-preserving, ensuring that personal information and payment details remain outside the access of both authorities and service providers.
Upcoming Speaking Engagements:
The Cedi@60 Anniversary Currency Conference (Accra, Ghana, November 17-20) hosted by the Bank of Ghana, in partnership with Currency Research, will celebrate 60 years of the Ghanaian Cedi, bringing together leaders from across Africa and beyond to reflect on the currency’s legacy and chart its digital future. Learn about Ghana’s eCedi pilot and the future of sovereign digital currencies in Africa, and engage with innovators driving mobile money, QR code payments, and financial inclusion across the region. [Register here and get 15% off by using the Kiffmeister15 code!]
I produce a monthly digest of digital fiat currency (DFC) developments exclusively for the official sector (e.g., central banks, ministries of finance and international financial institution (e.g., the BIS, IMF, OECD, World Bank)) plus academics and firms that are active in the DFC space (commercial banks, technology providers, consultants, etc.). (DFCs include central bank digital currency (CBDC), stablecoins and tokenized deposits.) It goes out via email on the first business day of every month, and if you’re interested in being on the mailing list, please email me at john@kiffmeister.com.
The Bank of England (BOE) published a note that outlines its current thinking on offline payments for a potential digital pound, distinguishing between “deferred offline payments” (similar to card transactions where payment is queued until a party reconnects online) and “device offline payments” (where value moves directly between devices out of online system view, like cash transfers). The note emphasizes the established use cases for deferred offline payments (e.g., transit, vending machines) and acknowledges future opportunities and resilience benefits for device offline payments, though risks and technical maturity mean such device-to-device features would not be available at launch. [Source: BOE]
The Reserve Bank of India (RBI) reportedly launched the offline digital rupee CBDC during the Global Fintech Fest 2025 in Mumbai. It would offer direct wallet-to-wallet transfers, benefiting remote areas and those without banking access. Users will be able to download wallets from 15 major banks. The wallets will offer secure recovery options in case of lost devices, alongside transaction limits set at Rs 50,000 per day or 20 transactions, with wallet balances capped at Rs 1 lakh. Key features will include programmable money (restricting usage by location, time, or purpose), and support for government welfare and corporate payments. [Source: CSR Journal]
Coincidentally, the RBI officially launched its “HaRBInger 2025 – Innovation for Transformation” hackathon, which features as one of the three focus areas, offline central bank digital currency (CBDC). Participants are invited to design a secure, user-friendly, tamper-resistant, and scalable solution for enabling offline digital rupee transactions. The solution should allow consecutive offline payments without real-time internet or telecom connectivity and ensuring double-spend prevention. It should work on low-cost devices and be agnostic across devices and communication protocols, and work on different form factors. [Source: RBI]
Blockstories’s Louis Tellier highlighted three key insights about the stablecoin business in Europe under MiCA regulation. First, banks issuing stablecoins are not required to maintain segregated reserves, allowing them to integrate stablecoin assets within their balance sheets and partially lend them under a fractional-reserve model, which provides banks a unique competitive edge over electronic money institutions (EMIs) like Circle that must maintain fully backed, segregated reserves. Second, despite MiCA’s prohibition on yield distribution for stablecoins, some platforms have enabled yield via DeFi integrations through non-custodial wallets—taking advantage of a regulatory “DeFi exemption” that falls outside MiCA’s scope; recent examples include Bitpanda and Deblock using protocols like Morpho. Lastly, deploying bank-issued stablecoins in DeFi is now feasible, with regulations clarifying that issuers need not know the identity of every holder at all times, as long as compliance features such as blacklists and token freezing are embedded in smart contracts, demonstrated by Société Générale and ODDO BHF. [Source: LinkedIn]
Nigeria’s Ministry of Finance and central bank have reportedly established a working group to examine the adoption of stablecoins as part of its financial sector innovation agenda. They aim to explore the broader implications of integrating stablecoins, balancing support for technological innovation with the need to mitigate associated risks. This is all against the backdrop of the underwhelming response to the e-Naira CBDC. [Source: Business Day Nigeria]
Bank Negara Malaysia (BNM) is reportedly expected to complete its proof-of-concept for a domestic wholesale central bank digital currency (CBDC) by the end of 2025. This initiative seeks to evaluate the potential use of CBDC within Malaysia’s wholesale payment system, especially focusing on the real-time electronic transfer of funds and securities system (Rentas), and to improve the understanding of distributed ledger technology (DLT) and CBDC for both BNM and the broader financial sector. Additionally, BNM is actively participating in several Bank for International Settlements Innovation Hub-led projects—such as Project Dunbar, Project Mandala, and Project Rialto—which explore how multi-CBDC arrangements can make cross-border wholesale payments more efficient, faster, and secure. [Source: The Edge Malaysia]
[February 4, 2025] The Ethiopian Parliament passed into law National Bank of Ethiopia (NBE) Proclamation No. 1359/2025, establishing a legal framework for the introduction of a digital birr central bank digital currency (CBDC). It permits the central bank’s Board to issue a Directive to issue CBDC as legal tender of the country. [Source: NBE]
Upcoming Speaking Engagements:
Stablecoin C-Suite Summit (New York City on November 14-15) will be the definitive conference for exploring the future of digital money and intelligent payments. The event brings together founders, C-level executives, investors, policymakers, and developers for two immersive days of talks, panels, and networking. This be the place to be if you’re building, backing, or regulating the next wave of programmable finance. [Register here]
The Digital Euro Conference 2026 (Frankfurt, March 26) will explore the future of money with a focus on CBDCs, stablecoins, and commercial bank tokens. This hybrid event offers the perfect platform to understand the future of digital money! When you register, get 20% off the regular ticket price by using the Kiffmeister20 code! [register here]
I produce a monthly digest of digital fiat currency (DFC) developments exclusively for the official sector (e.g., central banks, ministries of finance and international financial institution (e.g., the BIS, IMF, OECD, World Bank)) plus academics and firms that are active in the DFC space (commercial banks, technology providers, consultants, etc.). (DFCs include central bank digital currency (CBDC), stablecoins and tokenized deposits.) It goes out via email on the first business day of every month, and if you’re interested in being on the mailing list, please email me at john@kiffmeister.com.
Binur Zhalenov, Chief Digital Officer of the National Bank of Kazakhstan provided an update on the central bank’s digital tenge R3 Corda-based digital currency (CBDC) pilot project. The project centers on programmable public finance—enabling conditional, automated fund disbursement in government spending. In this model, allocated funds (such as those for infrastructure contracts) proceed through the payment chain only when predefined criteria are satisfied: supplier licensing, price compliance, and project plan alignment. Funds that fail verification are automatically blocked, while those reaching final recipients convert to unrestricted currency. The framework extends to social welfare payments, where beneficiary verification triggers direct payment to service providers, and to transaction types such as vehicle purchases. The team currently collaborates with the Ministry of Finance and Treasury on approximately 100 implementation projects applying these conditional “purpose-bound” payment mechanisms. [Source: LinkedIn]
Reserve Bank of India (RBI) Governor Shri Sanjay Malhotra announced that the central bank has conceptualised the Unified Markets Interface (UMI), as a next-generation financial market infrastructure. UMI will have the capability to tokenize financial assets and settlements using wholesale central bank’s digital currency (CBDC). He said that early results from the inaugural pilot on the issuance of certificates of deposit in improving market efficiency are encouraging. [Source: RBI]
G+D’s Lars Hupel posted a paper that explores the design and financial implications of offline payment functionality in the context of CBDCs and other payment systems, such as instant payment systems (IPS). The analysis is structured around three models: the classic CBDC (single central bank issuer), a multi-issuer system (commercial banks issue their own offline “digital cash”), and a single-issuer model operated by a private or non-central bank entity. The core argument is that while offline payments are desirable—and well understood for central bank-issued digital cash—adding offline capability to systems with multiple issuers introduces financial risks and complexities, primarily concerning the fungibility of liabilities and interbank settlement. Drawing on historical examples like Mondex, the paper suggests a single-issuer model is most practical, offering the advantages of offline payments without overburdening central banks or complicating risk management. The analysis is informed by the “money view,” which emphasizes the hierarchy of money and careful consideration of balance sheet mechanics for each model. [Source: LinkedIn]
Upcoming Speaking Engagements:
Stablecoin C-Suite Summit (New York City on November 14-15) will be the definitive conference for exploring the future of digital money and intelligent payments. The event brings together founders, C-level executives, investors, policymakers, and developers for two immersive days of talks, panels, and networking. This be the place to be if you’re building, backing, or regulating the next wave of programmable finance. [Register here]
The Digital Euro Conference 2026 (Frankfurt, March 26) will explore the future of money with a focus on CBDCs, stablecoins, and commercial bank tokens. This hybrid event offers the perfect platform to understand the future of digital money! When you register, get 20% off the regular ticket price by using the Kiffmeister20 code! [register here]
I produce a monthly digest of digital fiat currency (DFC) developments exclusively for the official sector (e.g., central banks, ministries of finance and international financial institution (e.g., the BIS, IMF, OECD, World Bank)) plus academics and firms that are active in the DFC space (commercial banks, technology providers, consultants, etc.). (DFCs include central bank digital currency (CBDC), stablecoins and tokenized deposits.) It goes out via email on the first business day of every month, and if you’re interested in being on the mailing list, please email me at john@kiffmeister.com.
The European Central Bank (ECB) has selected service providers for five key components of the digital euro project, following a call for applications and tender process. However, the actual development of components will only proceed pending adoption of the Digital Euro Regulation and further ECB Governing Council decisions. No payments have been made yet, and the agreements include safeguards to adapt to possible legislative changes. Framework agreements have been signed for: (i) alias lookup (Sapient and Tremend Software Consulting), (ii) risk and fraud management (Feedzai), (iii) app and software development kit (SDK) development (Almaviva and Fabrick), (iv) offline payment solutions (Giesecke+Devrient), and (v) secure exchange of payment information (Senacor). Service requests will initially be directed to the above providers, but second-ranked providers may be approached if required (see press release for full list). [Source: ECB]
Upcoming Speaking Engagements:
Stablecoin C-Suite Summit (New York City on November 14-15) will be the definitive conference for exploring the future of digital money and intelligent payments. The event brings together founders, C-level executives, investors, policymakers, and developers for two immersive days of talks, panels, and networking. This be the place to be if you’re building, backing, or regulating the next wave of programmable finance. [Register here]
The Digital Euro Conference 2026 (Frankfurt, March 26) will explore the future of money with a focus on CBDCs, stablecoins, and commercial bank tokens. This hybrid event offers the perfect platform to understand the future of digital money! When you register, get 20% off the regular ticket price by using the Kiffmeister20 code! [register here]
I produce a monthly digest of digital fiat currency (DFC) developments exclusively for the official sector (e.g., central banks, ministries of finance and international financial institution (e.g., the BIS, IMF, OECD, World Bank)) plus academics and firms that are active in the DFC space (commercial banks, technology providers, consultants, etc.). (DFCs include central bank digital currency (CBDC), stablecoins and tokenized deposits.) It goes out via email on the first business day of every month, and if you’re interested in being on the mailing list, please email me at john@kiffmeister.com.
This is a special sponsored edition of the Kiffmeister Chronicles. The note below presents the Crunchfish Digital Cash (CDC) Layer-2 (L2) solution as a viable augmentation to a central bank digital currency (CBDC) payment system with its novel packet-switched architecture delivered by a modular and cost-effective architecture. [Download the PDF version here]. Also, SODA’s Chris Ostrowski and Crunchfish’s Joachim Samuelsson discuss it in a podcast here.
The future of digital payments hinges on balancing cost, resilience, and seamless integration, bridging traditional infrastructure gaps while gearing solutions for next-generation financial landscapes. This note highlights Crunchfish Digital Cash (CDC) as a viable augmentation to a central bank digital currency (CBDC) payment system with its novel packet-switched architecture delivered by a modular and cost- effective architecture providing any underlying payment system with multiple desired design features.
Crunchfish is rethinking payments in all shapes and forms – online, offline, and even cash payments. This note briefly describes the Crunchfish Digital Cash (CDC) Layer-2 (L2) payment solution and how it augments CBDC Layer-1 (L1) systems with multiple desirable design features, such as resilience, privacy, security, scalability, interoperability, universality, seamlessness, and cost effectiveness.
Central banks are almost unanimous in their view that the ability of a CBDC to function offline is not merely a technical consideration but a key requirement. And that has spawned a growing literature on the topic from the official sector, the latest addition to which is a recently published IMF Fintech Note . However, like many other papers on offline payments, it focuses mainly on Wallet-to-Wallet considerations and gives only a light touch to the “plumbing” by which wallets interact and reconcile with online “core” ledgers. Although many vendors of offline payment solutions say that their platforms allow for indefinite operation offline, central banks are insisting that Wallets be regularly reconciled with the central ledger, to mitigate double spending risk and for financial integrity risk monitoring purposes. This note aims to rectify this omission, focusing on Crunchfish’s patented CDC L2 solution.[1]
Introducing CDC: Reserve, Pay, Settle
CDC uses a Reserve, Pay and Settle approach (RPS) that assigns a value to a Wallet, reserved on the central ledger, that limits the amount a user can pay offline. To initiate an offline payment, the payer generates and transmits a cryptographically signed digital IOU (“I owe you”) to the payee for an amount that accumulated, may not exceed the reserved value. The digital IOU can be validated by the payee in offline mode, and the digital credit amount may be used by the payee to make further offline payments, without synchronizing online. When either party goes online to synchronize their ledgers the digital IOUs are also validated in a Gateway before committing it on L1. This triggers a transfer of value on the central ledger from the payer’s reservation to the payee.
Recently, the Bank of Canada opined favorably on the MIT Digital Currency Initiative’s OpenCBDC two-phase commit (2PC) retail CBDC architecture. Like Crunchfish’s RPS approach, 2PC transaction processing involves a core system update (corresponding to the RPS L1) and a wallet-to-wallet transfer (L2), with a “sentinel” checking the integrity of wallet-to-wallet transactions before core system processing. CDC L2 generalizes 2PC by also supporting offline payments.. Crunchfish’s RPS approach has been trialled by the Swedish Riksbank, albeit on cards only, in the fourth and last phase of the e-krona project. In general, the payment industry should be no stranger to Crunchfish’s approach as it is a generalization of card payments and smart contracts.
CDC is agnostic as to whether the Wallet is implemented in a hardware secure element (HSE) or a software-based virtual secure element (VSE). The security and scalability implications of this choice was discussed in the IMF Fintech Note and summarized in Table 2 . It should be noted that HSE-based solutions are challenging to scale as no ecosystem exists to deploy and upgrade a trusted payment application across multiple mobile device models and multiple mobile network operators. This is contrasted by the easy deployment and upgrading of VSE-based trusted payment applications using standard app store ecosystems, plus the lower cost. Also, the security level for a VSE-based trusted payment application is homogeneous across mobile device models and only dependent on the isolating runtime layer provided by the integrated VSE, that mitigates double spending risks. CDC’s Wallets are therefore implemented currently using a VSE security foundation.
CDC is an approved offline payment solution by the Reserve Bank of India for regulated entities since 2023 and Crunchfish is working with the National Payments Corporation of India to introduce Terminals into their payment networks. Also, Crunchfish is participating in the European Central Bank’s digital euro innovation platform demonstrating three offline payment use cases with online settlement as an implementation of conditional payments, also known as smart contracts .
There are however many additional aspects that define how implementable a CBDC offline solution is in practice than just discussing the use of hardware vs. software-based secure elements. The rest of this note highlights such differences by contrasting Crunchfish’s CDC with CBDC L1 systems.
Beyond Wallets: CDC as a Holistic Solution
CDC is built with Wallets, Terminals, and Gateway components with the purpose of mitigating inherent vulnerabilities in underlying L1 payment systems. It is designed to respect the roles and responsibilities of payment networks and service providers. Whereas payment service providers equip users with Wallets to initiate and make payments, payment networks need Terminals and Gateways to receive and accept payments. This clear separation of an offline payment system allows for flexibility, scalability, and healthy market competition by ecosystem participants and protects the integrity of the CBDC payment system from Wallet transactions initiated off the central ledger.
CDC allows homogeneous handling of privacy for online and offline payments managed by the banks and intermediaries. It may also be configured to incorporate anonymity and privacy thresholds. Low-value offline transactions could be allowed to be completely anonymous, whereas higher-value online and offline payments may be private up to a threshold, and beyond such threshold system traceability is required. In addition, CDC provides cross-network and cross-border interoperability, universality and seamless online and offline operation. It augments the underlying CBDC L1 system as it works across devices, regardless of proximity interaction methods.
Crunchfish’s CDC ranks consistently on top when it comes to all design aspects, such as security, scalability, resilience, privacy, interoperability, universality, seamlessness, and cost. This makes it an ideal implementation companion to any CBDC L1 system. To learn more about Crunchfish and its offerings check out the homepage here, and more CDC L2 technical detail can be found here.
The Future of Payments: A Packet-Switched Architecture
CDC is based on a packet-switched architecture. This provides survivability in the face of failure on the application level, just as the internet provided resilience to digital communication. This is important to bring resilience and load balancing for online transactions. Crunchfish’s signature RPS approach implemented with its CDC L2 solution allows distributed processing for offline use cases and leverages core banking systems for reconciliation. There is simply no need for an adjunct offline payment system or adjunct centralized offline payment reconciliation system for that matter. What is required is a seamlessly integrated packet-switched L2 system that respects the roles and responsibilities in the payment ecosystem.
[1] Crunchfish foundational patent application with priority from January 2020 has been validated in 22 European countries, in the United States and Taiwan. It is patent pending in India and China. Crunchfish has also filed 14 additional patent applications on adjacent aspects, of which about half have already been granted and the others are pending being reviewed.
A team of central bankers posted a paper on SSRN that reviews the practical rollout and early experiences of retail central bank digital currencies (CBDCs) in The Bahamas (SandDollar), China (e-CNY), and Jamaica (JAM-DEX®) as of August 2025. It finds that while adoption has been gradual, there hasn’t been substantial movement of bank deposits to these CBDCs, largely because they function as payment instruments rather than savings vehicles. Each country’s approach reflects unique policy goals—such as financial inclusion and payments modernization—utilizing two-tiered, account-based structures with simple onboarding for the unbanked, and incentives to boost user and merchant uptake. The report highlights that robust communication, private sector participation, and overall adaptability are vital for success, and that while CBDCs still represent a small slice of total payments, they fill important gaps and offer valuable lessons for global policymakers. [Source: SSRN]
The Bank of Japan (BOJ) published a paper that examines non-ledger-based payment systems—specifically, cryptographic electronic cash that enables direct, peer-to-peer value transfer without a central ledger or always-online intermediary. It details the design, security, privacy, and usability of such systems, emphasizing their ability to facilitate offline payments much like physical cash. The study highlights advances such as the use of tamper-resistant devices, cryptographic mechanisms to mitigate double spending, and protocols to retain user privacy while allowing for traceability when necessary. By testing modern smartphones for real-world feasibility, the paper finds that technical barriers once faced by e-cash systems have largely been resolved. Ultimately, the study suggests that electronic cash could combine the best aspects of physical cash—privacy, resilience, and convenience—with the benefits of digital payments, positioning it as a viable option in the evolving landscape of cashless societies. [Source: BOJ]
Upcoming Speaking Engagements:
The CB+DC Conference (Nassau, Bahamas, September 9-11) is a premier gathering centered on CBDCs, tokenized assets, and stablecoins. It provides a forum for central bankers, commercial bankers, technology innovators, policymakers, and academics to explore the latest advancements in digital currency, engage with experts and peers, and discuss the future of digital currency. [Register here but before you do, email me at john@kiffmeister.com for a 15% discount]
I produce a monthly digest of digital fiat currency (DFC) developments exclusively for the official sector (e.g., central banks, ministries of finance and international financial institution (e.g., the BIS, IMF, OECD, World Bank)) plus academics and firms that are active in the DFC space (commercial banks, technology providers, consultants, etc.). (DFCs include central bank digital currency (CBDC), stablecoins and tokenized deposits.) It goes out via email on the first business day of every month, and if you’re interested in being on the mailing list, please email me at john@kiffmeister.com.
Technology Solutions to Support CBDC with Limited Connectivity: A Review of Existing Approaches (IMF)
SODA’s Chris Ostrowski and I were part of the team behind a Fintech Note that the IMF published that examines technology solutions for enabling central bank digital currency (CBDC) operations in environments with limited or no connectivity. The paper analyzes various technological approaches across a spectrum of connectivity scenarios, from complete offline functionality to SMS/USSD-based systems that work on basic cellular networks. Through interviews with payment platform providers, central banks, and industry experts, different form factors (smartphones, feature phones, stored-value cards, and custom devices) are evaluated against three key criteria: accessibility and usability, cybersecurity and operational risks, and privacy considerations. The research reveals that no single solution meets all requirements, necessitating tailored combinations of technologies based on local infrastructure and user needs. Key findings indicate that while fully secure offline solutions do not yet exist, effective risk mitigation strategies through transaction limits, secure elements, and staged reconciliation have been successfully tested in pilot environments. The paper concludes that successful offline CBDC deployment requires ongoing technological agility, diverse access channels, and proactive risk management over unattainable absolute security. [Read more at the IMF]
However, like many other papers that cover offline payments, the IMF Fintech Note focuses mainly on wallet-to-wallet considerations and gives only a light touch to the “plumbing” by which wallets interact and reconcile with online “core” ledgers. The rest of this blog rectifies this omission, focusing on the Crunchfish Digital Cash (CDC) L2 solution as a viable augmentation to a CBDC payment system with its novel packet-switched architecture delivered by a modular and cost-effective architecture. [See PDF version at the end of this post]
Rethinking CBDC Retail Payments with Crunchfish Digital Cash Layer-2 Architecture
A Practical Approach to Secure, Scalable, and Interoperable Digital Currency Transactions
The future of digital payments hinges on balancing cost, resilience, and seamless integration, bridging traditional infrastructure gaps while gearing solutions for next-generation financial landscapes. This note highlights Crunchfish Digital Cash (CDC) as a viable augmentation to a central bank digital currency (CBDC) payment system with its novel packet-switched architecture delivered by a modular and cost- effective architecture providing any underlying payment system with multiple desired design features.
Crunchfish is rethinking payments in all shapes and forms – online, offline, and even cash payments. This note briefly describes the Crunchfish Digital Cash (CDC) Layer-2 (L2) payment solution and how it augments CBDC Layer-1 (L1) systems with multiple desirable design features, such as resilience, privacy, security, scalability, interoperability, universality, seamlessness, and cost effectiveness.
Central banks are almost unanimous in their view that the ability of a CBDC to function offline is not merely a technical consideration but a key requirement. And that has spawned a growing literature on the topic from the official sector, the latest addition to which is a recently published IMF Fintech Note . However, like many other papers on offline payments, it focuses mainly on Wallet-to-Wallet considerations and gives only a light touch to the “plumbing” by which wallets interact and reconcile with online “core” ledgers. Although many vendors of offline payment solutions say that their platforms allow for indefinite operation offline, central banks are insisting that Wallets be regularly reconciled with the central ledger, to mitigate double spending risk and for financial integrity risk monitoring purposes. This note aims to rectify this omission, focusing on Crunchfish’s patented CDC L2 solution.[1]
Introducing CDC: Reserve, Pay, Settle
CDC uses a Reserve, Pay and Settle approach (RPS) that assigns a value to a Wallet, reserved on the central ledger, that limits the amount a user can pay offline. To initiate an offline payment, the payer generates and transmits a cryptographically signed digital IOU (“I owe you”) to the payee for an amount that accumulated, may not exceed the reserved value. The digital IOU can be validated by the payee in offline mode, and the digital credit amount may be used by the payee to make further offline payments, without synchronizing online. When either party goes online to synchronize their ledgers the digital IOUs are also validated in a Gateway before committing it on L1. This triggers a transfer of value on the central ledger from the payer’s reservation to the payee.
Recently, the Bank of Canada opined favorably on the MIT Digital Currency Initiative’s OpenCBDC two-phase commit (2PC) retail CBDC architecture. Like Crunchfish’s RPS approach, 2PC transaction processing involves a core system update (corresponding to the RPS L1) and a wallet-to-wallet transfer (L2), with a “sentinel” checking the integrity of wallet-to-wallet transactions before core system processing. CDC L2 generalizes 2PC by also supporting offline payments.. Crunchfish’s RPS approach has been trialled by the Swedish Riksbank, albeit on cards only, in the fourth and last phase of the e-krona project. In general, the payment industry should be no stranger to Crunchfish’s approach as it is a generalization of card payments and smart contracts.
CDC is agnostic as to whether the Wallet is implemented in a hardware secure element (HSE) or a software-based virtual secure element (VSE). The security and scalability implications of this choice was discussed in the IMF Fintech Note and summarized in Table 2 . It should be noted that HSE-based solutions are challenging to scale as no ecosystem exists to deploy and upgrade a trusted payment application across multiple mobile device models and multiple mobile network operators. This is contrasted by the easy deployment and upgrading of VSE-based trusted payment applications using standard app store ecosystems, plus the lower cost. Also, the security level for a VSE-based trusted payment application is homogeneous across mobile device models and only dependent on the isolating runtime layer provided by the integrated VSE, that mitigates double spending risks. CDC’s Wallets are therefore implemented currently using a VSE security foundation.
CDC is an approved offline payment solution by the Reserve Bank of India for regulated entities since 2023 and Crunchfish is working with the National Payments Corporation of India to introduce Terminals into their payment networks. Also, Crunchfish is participating in the European Central Bank’s digital euro innovation platform demonstrating three offline payment use cases with online settlement as an implementation of conditional payments, also known as smart contracts .
There are however many additional aspects that define how implementable a CBDC offline solution is in practice than just discussing the use of hardware vs. software-based secure elements. The rest of this note highlights such differences by contrasting Crunchfish’s CDC with CBDC L1 systems.
Beyond Wallets: CDC as a Holistic Solution
CDC is built with Wallets, Terminals, and Gateway components with the purpose of mitigating inherent vulnerabilities in underlying L1 payment systems. It is designed to respect the roles and responsibilities of payment networks and service providers. Whereas payment service providers equip users with Wallets to initiate and make payments, payment networks need Terminals and Gateways to receive and accept payments. This clear separation of an offline payment system allows for flexibility, scalability, and healthy market competition by ecosystem participants and protects the integrity of the CBDC payment system from Wallet transactions initiated off the central ledger.
CDC allows homogeneous handling of privacy for online and offline payments managed by the banks and intermediaries. It may also be configured to incorporate anonymity and privacy thresholds. Low-value offline transactions could be allowed to be completely anonymous, whereas higher-value online and offline payments may be private up to a threshold, and beyond such threshold system traceability is required. In addition, CDC provides cross-network and cross-border interoperability, universality and seamless online and offline operation. It augments the underlying CBDC L1 system as it works across devices, regardless of proximity interaction methods.
Crunchfish’s CDC ranks consistently on top when it comes to all design aspects, such as security, scalability, resilience, privacy, interoperability, universality, seamlessness, and cost. This makes it an ideal implementation companion to any CBDC L1 system. To learn more about Crunchfish and its offerings check out the homepage here, and more CDC L2 technical detail can be found here.
The Future of Payments: A Packet-Switched Architecture
CDC is based on a packet-switched architecture. This provides survivability in the face of failure on the application level, just as the internet provided resilience to digital communication. This is important to bring resilience and load balancing for online transactions. Crunchfish’s signature RPS approach implemented with its CDC L2 solution allows distributed processing for offline use cases and leverages core banking systems for reconciliation. There is simply no need for an adjunct offline payment system or adjunct centralized offline payment reconciliation system for that matter. What is required is a seamlessly integrated packet-switched L2 system that respects the roles and responsibilities in the payment ecosystem.
[1] Crunchfish foundational patent application with priority from January 2020 has been validated in 22 European countries, in the United States and Taiwan. It is patent pending in India and China. Crunchfish has also filed 14 additional patent applications on adjacent aspects, of which about half have already been granted and the others are pending being reviewed.
De Nederlandsche Bank (DNB) surveyed 2,000 Dutch consumers to find out whether they would be willing to use an offline-digital euro (D€) that was as private as cash (funds are stored locally and no third party involved in a payment). Participants were randomly allocated funds to allocate across cash, debit cards and D€ for household expenses over a month. Two-thirds used at least some of the D€, with 75% of non-users not seeing any added value in it, plus 55% expressing unfamiliarity with it, and 48% a lack of trust in it. 25% of non-users cited privacy concerns. Only 28% of users said that the extra privacy of an offline D€ was a reason for using the D€. Also, half the participants were told there was a 50% that their debit cards would be nonfunctional over the month. Those in this group chose to keep not only more cash but also more D€ in their wallets. Also, 42% of participants said they would prefer to keep their D€ on a payment card; 33% would prefer an app and 26% have no preference. [Read more at the DNB]
And just a reminder that I produce a monthly digest of central bank digital currency (CBDC) developments exclusively for the official sector. So (only)if you work at a central bank, ministry of finance or international financial institution (e.g., the BIS, IMF, OECD, World Bank) and who would like to receive it by email on the first business day of every month, please DM me on LinkedIn or email me at john@kiffmeister.com.
