As part of the Bank of England’s central bank digital currency (CBDC) design phase, it explored an offline CBDC for its digital pound. At this stage it was only interested in technology issues, so it tested solutions provided by Thales, Secretarium, IDEMIA Secure Transactions, Quali-Sign and Consult Hyperion. It concluded the solutions were technically capable of delivering final payments, but found challenges relating to usability and the prevention and detection of counterfeits and double spending.

Offline usability challenges

The first challenge was that the offline and online CBDC balances are kept separate in the wallet, which users might find odd given they don’t care about the technical ramifications. Sometimes wifi outages can catch a user off guard. But if they haven’t already moved money into the offline balance, they won’t be able to use the offline functionality unless someone else pays them offline.

Offline payments tend to use secure elements either on a smartphone, a special SIM or smart cards. Given they have limited storage capacity, this caps the number of transactions that are possible before reconnecting to the network. One of the solutions tested was particularly limited on this front.

Imposing transaction limits in order to address potential risks has the side effect of impacting usability. And they are often not practical. For example, any kind of time limits are challenging because smart cards don’t have clocks. On smartphones the time on the clock might be changed. An alternative is to limit the number of transactions, if the secure element is compromised the transaction count could be manipulated. Although in that case, the CBDC has a problem anyway, because the private keys are also likely to be vulnerable.

Preventing and detecting fraud

The primary line of defense against counterfeiting and double spending is the cryptographic keys used within the secure element of the device. However, if somehow these are compromised, there’s a need to detect this has happened.

After executing a transaction offline, when the device is within wifi range it subsequently performs a reconciliation with the online ledger to highlight fraud or double spending. However, this is after the fact, so it doesn’t prevent double spending.

Devices can keep transaction records for later reconciliation. The possibilities are to keep full transaction records, partial records or no records, which renders the transactions anonymous. The Bank of England observed that without transaction records to reconcile with the online ledger, it’s not possible to detect counterfeits and double spending at all. And even when records are kept, the intermediaries need to share the records with each other for detection purposes. Various privacy preserving technologies were tested to safeguard personal information.

Additionally, the trials tested having a centralized system for uploading offline transaction data, using confidential computing to protect personal data. That allowed additional checks, including for money laundering.

The paper concluded that the trials “demonstrated that it might be technically feasible to implement an offline payment functionality for a digital pound but there are security, performance, and user experience challenges which need to be explored further.”

Hence, two major areas where work is needed is for double spending and fraud checks, and what happens if the secure element is compromised. While secure elements are widely used for payments, they are usually combined with simultaneous online checks.

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Galaxy Digital has released a report on the cryptocurrency lending market, highlighting the central role of stablecoin issuer Tether. All the major centralized lenders in the previous crypto boom went bankrupt, and Tether has stepped into the void, becoming the dominant player with around 73% of the market. Since the last boom, the majority of crypto lending has shifted from centralized lending to DeFi lending.

Tether doesn’t hide its lending activities. Its stablecoin report for the end of 2024 shows its reserves include a secured lending balance of $8.2 billion. According to Galaxy’s data, the entire market for centralized crypto loans outstanding at the end of 2024 was $9.9 billion, with Tether having a market share of around 73%. This implies a minority of Tether’s loans are not for cryptocurrencies.

Many countries introducing stablecoin legislation prevent stablecoin issuers from participating in lending. That’s in part because they start to look like banks, including from a risk perspective. Doubtless Tether would point to the $7 billion in equity sitting within the issuer, which would cover a lot of mis-steps. However, the $8.2 billion lending sits alongside several other risky or volatile assets, including almost $8 billion in bitcoin.

Crypto lending: a risky business

The top three centralized lenders are Tether, Galaxy and Ledn, with a combined share of 88.6% of the centralized finance (CeFi) market. Whether or not that’s a good group to be part of remains to be seen, given the graphic showing the number of previous participants that went bankrupt.

However, Galaxy highlighted some of the risks taken by the previous batch of lenders, implying that practices have changed. For example, the previous lenders tended to lend long and borrow short term rather like banks, so they got into trouble when they needed more liquidity. Both Celsius and BlockFi also extended some loans without collateral.

Galaxy also pointed to the entrance of traditional finance (TradFi) players, including Cantor Fitzgerald, formerly led by the current US Commerce Secretary Howard Lutnick. Cantor previously announced plans to start crypto lending with $2 billion of financing initially. That could make it one of the larger players. The report also stated that SAB 121, which prevented banks from providing crypto custody also indirectly blocked them from involvement in lending because they needed to take custody. We’d note that Basel crypto rules for banks also make it tricky, although the rules do allow some hedging for crypto, hence collateralized loans can be partially offset.

Since the previous crypto crises, the balance of crypto lending has moved to decentralized finance (DeFi) which held up well during volatile times. At the height of the previous boom, DeFi made up just over a third, whereas now it is dominant. However, that’s in part because CeFi lending outstanding at the end of 2024 was only around a third of its peak in 2021. The figures exclude crypto collateralized products (CDP) – stablecoins backed by crypto.

With new centralized lenders attracted to the market, the pendulum could swing back.

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There’s a news report circulating that China announced it had linked its digital RMB cross border payment system to ten ASEAN countries and six Middle Eastern jurisdictions. We have not been able to trace this to a reliable source, so it may be fake news. However, the substance of the report is not a million miles from the facts. It’s likely jumping the gun by a few years.

China is a member of mBridge, a cross border payments joint venture using central bank digital currency (CBDC). The Chinese end of any payments uses its digital RMB CBDC, but mBridge does not belong to China. Other member countries include Hong Kong, Thailand, the UAE and Saudi Arabia. As of late last year there were a couple of dozen observers. If one counts the observers (which is a big leap) then it would have covered five ASEAN countries and six Middle Eastern ones.

Why mBridge is not a threat. Yet.

The first English language report about the ASEAN/Middle East footprint came from a Nigerian outlet Proshare. It noted that the news implies “that about 38% of global trade could bypass the US dollar dominated SWIFT network.”

In order for it to reach 38%, not only would all the central banks in each of these countries have to be connected to mBridge, but so would all their commercial banks. Judging by the slow and gradual adoption of mBridge by Chinese banks, today that 38% is extremely theoretical. That’s not to say it couldn’t be a substantial figure in a few years.

Additionally, in order to reach 38%, all the countries would have to shift 100% of cross border payments to local currencies. Today a large proportion of trade is denominated in dollars.

There’s a good reason for that.

For virtually every country in the world, their optimal foreign exchange rate with the narrowest margin is against the dollar. That’s because having a single intermediate currency means there are a lot more buyers and sellers for that exchange rate. By contrast, if you look at every cross currency exchange rate, for 180 global currencies there are 16,110 cross currency rates, most of which are thinly traded, making them expensive.

If a trader chooses to invoice in their local currency or the currency of their customer, one or both of them will have to suffer the cost of a suboptimal exchange rate.

So even if the government thinks local currency is desirable, the cost of choosing the trading currency falls on merchants, who usually want to save money, so they choose dollars.

No reliable source for the announcement

We prefer to go back to the original source of news. We monitor Chinese language news daily, specifically on digital payments, and had not come across this ASEAN/Middle East report. Two or three times a week we see announcements about various Chinese banks making different types of mBridge transactions for the first time.

We found at least two Chinese language articles about this ASEAN report that pre-dated the Proshare article. However, they were from smaller outlets and one of the posts is now inaccessible. The other one controversially mentions Iran as a participant. A major Chinese news outlet, Sina, ran an article about the ASEAN and Middle Eastern links in the last couple of days, but that has also been taken down.

There was reference to an original Chinese news story that was allegedly published on 17 March 2025, which happened to coincide with a People’s Bank of China visit by Hank Paulson, the former US Secretary of the Treasury under George W Bush.

There are two possibilities: the news is true, but was taken down because of sensitivities regarding US tariffs. Or the news is false and sites were instructed to take it down for that reason.

mBridge, the cross border payment solution

In 2023 we wrote about mBridge and the coming cross border payments fragmentation. The solution launched as a minimum viable product in June 2024. A few months later, rumors circulated that the Bank for International Settlements (BIS), the central bank of central banks, was thinking of withdrawing because a sanctioned country might get involved. At the time, Russia regularly mentioned the similar sounding BRICS Bridge.

In November 2024, the BIS stepped away from its mBridge involvement, saying the project had graduated. During his talk about the handover, BIS General Manager Agustín Carstens said that the BIS could not be involved with sanctioned countries, and that mBridge was never designed to cater to BRICS, but was intended as a broader public good.

As we noted earlier, at that stage there was one ASEAN mBridge member, Thailand, and four ASEAN observers: Cambodia, Indonesia, Malaysia and the Philippines, giving a total of five (rather than the ten reported). There were already two Middle Eastern members, the UAE and the newly joined Saudi Arabia. Plus there were four Middle Eastern observers: Bahrain, Egypt, Jordan and Turkey. At that stage there was no mention of Qatar or Iran which are allegedly currently participating.

There’s also a big difference between being an observer and becoming a member. For those that become members, first the central bank has to perform some integration and then commercial banks have to integrate as well.

It’s extremely unlikely that in five months mBridge has gone from one active ASEAN country to ten and from two active Middle eastern ones to six. Hence, the report is most likely false.

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