Project Pine explores if and how central banks can continue implementing monetary policy operations in a tokenised world.
The project team successfully built a toolkit prototype using smart contracts. The prototype has the capability to pay interest on reserves and create facilities that temporarily exchange reserves for collateral (and vice versa), swap assets, and execute asset purchases and sales.
It was tested using hypothetical scenarios based on past market events (like interest rate tightening and easing cycles, quantitative easing and tightening cycles, and periods of strained market liquidity or broader disruptions in markets).
The project demonstrated that central banks could use this new technology to carry out their existing roles if tokenisation is widely adopted. If payments and securities are tokenised, the benefit to central banks would differ based on circumstances and existing operations. Yet Project Pine found that central banks could use smart contracts to easily and quickly create new facilities or adjust existing ones to optimize the implementation of monetary policy in a tokenised environment.
Project Pine's results offer central banks a starting point for better understanding the opportunities, risks, and requirements of adopting tokenisation in their respective jurisdictions. Technical experimentation is still at an early stage and there are more areas for future research and collaboration.
Project Pine: exploring monetary policy implementation in tokenised financial markets
Project Pine is a joint research study by the New York Fed's New York Innovation Center and the BIS Innovation Hub Swiss Centre that explores if and how central banks can implement monetary policy in a potential future state where the financial sector widely adopts tokenisation in wholesale markets.