The Federal Reserve Bank of New York and the Bank for International Settlements (BIS) have released a joint research study examining how central banks can continue to implement monetary policy in tokenized wholesale financial markets.
This initiative, known as Project Pine, reveals that central banks could use programmable smart contracts to deploy policy implementation tools in a future where commercial banks widely adopt tokenization for wholesale payments and securities settlement.
The project produced a prototype for a generic monetary policy implementation toolkit, designed for potential further development by central banks across different jurisdictions and currencies. According to the BIS and the Fed, this toolkit can meet a common set of requirements for central bank operations, including managing interest on reserves, conducting open market operations, and handling collateral.
The toolkit was tested using ten hypothetical scenarios based on historical data from past market events, such as interest rate cycles, quantitative easing and tightening periods, and instances of strained liquidity or broader market disruptions.
“The prototype successfully responded and executed the intended operations under various market conditions,” the BIS reports. “Project Pine’s findings underscore the need for further research and analysis regarding interoperability and data standardization.”