Rise of Central Bank Digital Currencies (CBDCs): Shaping the Future of Digital Payments
The digital side of financial transactions has evolved greatly post COVID-19 pandemic. Financial systems and payment systems are experiencing a major decline in cash usage across the globe. Digital currency reigns dominant with a superior addition to its arsenal: Central Bank Digital Currencies (CBDCs).
Central Bank Digital Currencies (CBDCs) are a modern form of government-issued currency, which is not related to or has any direct connection to a physical commodity. CBDCs are authorized and distributed by central banks that take care of supporting financial services for a nation’s government and its overall commercial banking order.
Crypto technologies have caused significant disruptions to the global financial structure. Blockchain technology has revolutionized banking and transactions. Central banks use similar technology and are developing their own digital currencies, which are now competing with cryptocurrencies. According to a recent survey, 87 countries are exploring their options with CBDCs. This accounts for almost 90% of the global GDP.
New Dawn in the Financial Sector — CBDCs Across the Globe
The Fed (central bank in the U.S.) is expected to step up work for a wholesale CBDC following the launch of the FedNow fast payment system in July. The ECB (central bank in the Eurozone) was also scheduled to start the pilot program of the digital euro at the end of 2023, which has been making serious progress for several years now. The EU Commission has also prepared the legal framework for the digital euro.
The Federal Reserve (United States) is believed to speed up its efforts in developing a wholesale Central Bank Digital Currency (CBDC) after the successful launch of the FedNow fast payment system last July. A similar effort is aligned by the European Central Bank (ECB), which initiated a pilot program for the digital euro.
The Middle East has its own exploration with Project Aber that has been jointly commenced by the central banks of the United Arab Emirates and Saudi Arabia. This digital currency aims to enhance the efficiency of both domestic and cross-border transactions between the two nations.
The Yuan (e-CNY) project by China has gained a lot of spotlights as they claim it to be the most advanced among all other CBDC projects across major global economies. Till date, China has successfully included hundreds of millions of users across multiple regions as part of the trials.
China’s Yuan (e-CNY) project has drawn a lot of attention because, according to them, it is the most advanced CBDC project across all major international economies. As of right now, China has effectively included many millions of users in various regions for the trials.
Driving Forces Behind the Surge of CBDCs
Growing interest in privately issued digital assets
Going by the stats showcased by the European Central Bank, close to 10% of households across six large EU nations possess digital assets. Going by the modern tech-stricken standards in the financial sector, the consumer’s adoption of digital assets is directly presenting a potential challenge to fiat money (government-issued currency) as the standard unit for measuring value.
Dwindling Cash Utilization
Between 2014 and 2021, there was a nearly one-third decrease in the use of cash in Europe. These developments have forced central banks to take back control of the monetary system.
Diminishing Perception of Central Banks as Innovators
Central banks have seized the chance presented by the emergence of CBDCs to create strategic roadmaps for the contemporary use of digital currencies and position themselves as leaders in the advancement of banking and finance.
Success Implementation of the CBDC System with Quality Engineering
For Central Bank Digital Currency (CBDC) systems to run smoothly, the inclusion of quality engineering is a must. The value of quality control and testing implementations is the topmost priority to upkeep resilience and customer experience.
Below are some of the CBDC system issues that can be resolved using quality engineering:
1. Complex Ecosystem of CBDC
CBDC systems contain several interlinked components (smart contracts, blockchain, authentication models) that must be maintained. Quality engineers are responsible for testing the entire ecosystem to ensure that it functions properly and integrates seamlessly.
2. Data Privacy
CBDCs contain sensitive data, making data privacy and security with the blockchain a significant challenge. Quality engineering includes the development of various testing scenarios to actively validate data protection operations while maintaining blockchain transparency.
3. Regulatory Compliance
A CBDC must adhere to a variety of financial regulations and compliances. The QE and testing practices for a CBDC system are aligned to meet regulatory standards while also ensuring system efficiency.
4. Smart Contract Authentication
For quality engineers, thoroughly inspecting, auditing, and testing smart contracts is a critical task. This is done to identify system vulnerabilities, resulting in improved security and accuracy.
5. User Experience
To achieve active adoption of CBDCs, the user interface and experience play a crucial role. Under QE practices, the engineers plan strategies to ensure that the user interfaces are not just user-friendly but also built-in and accessible across a wide range of devices and platforms.
Final Say…
The future of CBDCs remains unknown, but global economies are making genuine efforts to increase their use. CBDC’s potential to make a significant impact in the financial sector has inspired business leaders and stakeholders to believe in this technology if proper testing and quality assurance is ensured. The implementation of codeless approaches and automation techniques is confidently revolutionizing BFSI testing practices and that can work as a great pillar of support for driving CBDC’s expansion at the global level.
