The Bank for International Settlements (BIS) and the Federal Reserve Bank of New York have conducted a joint study, Project Pine, to examine how central banks might implement monetary policy in a future dominated by tokenised wholesale financial markets. This research aims to assess the viability of central banks using programmable smart contracts for operations such as paying interest on reserves, conducting open market operations, and managing collateral within a tokenised environment.
The study’s prototype successfully carried out key policy operations under varying market conditions, demonstrating that central banks could effectively execute monetary policy even in a decentralised financial system. The findings indicate that smart contracts could significantly enhance the speed and flexibility of central bank actions, reducing the delays typically seen between policy announcements and their implementation.
Although current central bank operations remain unaffected, the study stresses the need for preparedness as financial systems evolve with tokenisation. The report highlights potential challenges in maintaining central bank money within decentralised environments and the critical importance of balancing automation with human oversight.
This initiative underscores the growing necessity for central banks to align their monetary policy tools with technological advances, ensuring their continued effectiveness in a rapidly changing financial landscape. To maintain stability in a shifting global economy, central banks must be agile, ready to adapt to these emerging technologies.
