The New York Fed’s Innovation Center and the BIS’s Swiss Center introduced “Project Pine,” a prototype for central bank operations in tokenized wholesale markets. The project demonstrated smart contracts executing interest payments, open market operations, and emergency liquidity support within milliseconds. In ten historical stress scenarios, the system fully met the targeted liquidity.
Live Testing Monetary Policy Tools with Smart Contracts
The prototype was developed with a “general monetary policy toolbox” architecture that can be adapted to different monetary authorities. Code blocks can be parameterized according to the operational framework of the relevant bank and directly deployed on Blockchain. This approach transforms complex operations like daily interest accrual on reserve balances or open market repo auctions into simple function calls. The software updates the ownership of tokenized reserves in real-time, minimizing counterparty risk, thus enhancing transparency and supervision.
The New York Fed and BIS teams created ten scenarios ranging from “normal day” conditions to global liquidity shocks. In each case, the system sterilized short-term excess liquidity or alleviated sudden funding constraints. The transaction outcomes were instantly verified with on-chain records.
The speed of operations, reducing processes that would take hours in classical infrastructure to milliseconds, showed significant potential to enhance the operational flexibility of central bank balance sheets.
Technical Challenges Observed in the Project
The tests revealed that the current non-alignment of message formats and token standards at a global scale poses operational risk. Although cross-chain bridges work, there is a need for common identity layers and control protocols for the secure transfer of high-value government bonds and reserve tokens. Additionally, without open reporting templates for analyzing real-time liquidity data, tracking policy effectiveness becomes difficult.
The BIS Innovation Center aims to initiate a multi-stakeholder discussion by sharing its findings with the global central banking community. Advisors contributing to the prototype emphasized that it is not limited to any specific currency but is designed solely for research purposes. Nonetheless, the results indicate that once legal frameworks are updated, smart contract tools could accelerate the monetary transmission mechanism and introduce new layers of transparency.
The research underscores that in the age of tokenized finance, central banks can play an uninterrupted role in liquidity management, but a global consensus on interoperability and standards is indispensable.
