Contributor Intro: Perfinal Technologies Zrt is a core banking technology provider launched in Jan 2021 in Hungary. We have designed and built a CBDC-ready core banking platform, acknowledging that CBDC remains in its infancy, to be developed through discussion, experiment and sharing best practice.

We have responded to committee questions 1, 2, 3, 4, and 6, from a  technical/design perspective.

Contributors: Perfinal CEO Mate Brezovszki, CTO Imre Fazekas, Head of Communications Albert Bowkett


1.      What are the main issues driving central banks to explore CBDCs?

i) For citizens, finance is overly bureaucratic with a high degree of duplication. To access the digital services that are supposed to make lives simpler, citizens must accumulate cards, digital cards, apps, passwords, verifications, etc. all of which add complexity for the customer and for the accounting. CBDC can simplify customer experience, thereby improving citizens' access to commerce and financial service.

ii) Second, CBDC allows central banks or govt. to send money directly to citizens, with the option to program the digital currency for spending in specific ways. This can be used to target certain demographics, industries or issues, e.g. disaster relief money for poor families to spend in restaurants.

iii) Third, access to financial services is not currently a fundamental right. This concerns both the unbanked and the underbanked.

iv) Fourth, for businesses, bureaucracy can be significantly reduced through the provision of CBDC.

v) Fifth, the current path of money is obscured by digital complexity combined with manual reports. Unanswered legacy issues are being compounded by digital proliferation, leading to increased fraud and money laundering. The biggest avenue for money laundering is cash. Ultimately, the only way to replace cash is CBDC.

vi) Finally, no central bank wants to risk becoming obsolete or without a seat at the table. As other central banks around the world develop CBDCs, they acquire knowledge and set the agenda.

2. What are the main benefits and risks of a CBDC?


i) The main benefits are simplicity for the customer, the entrepreneur and the accountant.

ii) One wallet can serve all: it's centralised, but centralised from the citizen’s perspective.

iii) The national bank achieves oversight of the flow of money.

iv) The national bank can preserve Money as a public good, extending financial services to the unbanked and underbanked.

v) CBDC provides disintermediation between the national bank and the citizen.

vi) CBDC can address money laundering and fraud issues, mainly by minimising the use of cash.


vii) New money laundering and fraud issues. Any ML/F failures in CBDC can inflict reputational damage on the central bank and devalue the currency.

viii) CBDC requires all citizens to have ID, internet connectivity, and an account with the national bank. This raises legal questions: do citizens have the right to remain undigitalised?

ix) Exposure. Currency abuse and manipulation, e.g. by enemy states or organisations. This requires development of new safeguards: the logic behind current safeguards must be ported, re-oriented and applied to the digital world.

x) State capture or perception of state capture of financial data and over-reach/control.

3. Could the proposed benefits of a CBDC be achieved through improvements to existing payment systems?

i) Theoretically - via automation, significant regulation, and coherent strategy - speed, accessibility and simplification can be achieved through improvements to existing payment systems. Digitalisation and coherent strategy can be enforced and automation promoted.

ii) However, CBDC benefits of centralisation, oversight and (appropriate) disintermediation (i.e. providing a direct connection between central bank and citizen) can only be achieved via a non-commercial, centralised entity standing for the public interest, with appropriate safeguards.

4. How should the Bank of England and HM Treasury address concerns over privacy and traceability of payments when exploring CBDC design?

i) GDPR must be applied: personal information cannot be formulated or stored. Citizens should not be profiled. There are several options on the technical level:

ii) Exposing the source code. This proves and reassures citizens that they are not being profiled and that the system is operating as intended. Exposing the source code does not mean compromising security (this is a common category error).

iii) Very specific security measures can be employed on the IT level. All access should be through very specific digital signatures and function management should be determined by cryptographic and mathematical features such that the operator cannot read a citizen's wallet but can carry out required operations and calculations. Once again, PSD2 offers some good access management strategy schemes which can be applied or adapted to CBDC. We are also working on similar technologies at Perfinal.

iv) On traceability concerns: Citizens are currently traced and profiled by commercial banks. Central banks can employ 'anonymous tracing' via mathematical functions and storage strategy. This anonymous, i.e. non-malign property can be monitored and verified via independent organisations.

6. What effect might a CBDC have on competition and innovation in the payments and fintech sectors?

i) It is likely that CBDC (centralised, traceable to individuals) will be regarded by many as the antithesis to blockchain (decentralised, untraceable to individuals). Others may see CBDC as a means of legitimising and providing standards for digital currencies. The BIS have researched the possibility of combining CBDC by using existing blockchain networks but this would still require some kind of centralised ‘white list’.

ii) CBDC will be disruptive, meaning there will be winners and losers. One positive for smaller fintechs is that central banks could provide a PSD2 interface for CBDC allowing smaller fintechs to compete.

14 October 2021