The Federal Reserve Bank of New York and the Bank for International Settlements (BIS) have published a joint research study that explored how central banks could continue to implement monetary policy operations in tokenised wholesale financial markets.

Dubbed Project Pine, the study found that central banks could deploy policy implementation tools using programmable smart contracts in a potential future state where commercial banks have widely adopted tokenisation for wholesale payments and securities settlement.

The project generated the prototype of a generic monetary policy implementation tokenised toolkit for potential further research and development by central banks across jurisdictions and currencies. The BIS and the Fed say the prototype can fulfil a common set of central bank implementation requirements, including paying interest on reserves, open market operations, and collateral management.

The toolkit was tested against ten hypothetical scenarios that applied historical data inputs on past market events, such as interest rate tightening and easing cycles, quantitative easing and tightening cycles, and periods of strained market liquidity or broader market disruptions.

“The prototype successfully responded and instantaneously carried out the intended operation under the varying market conditions,” states the BIS. “Project Pine’s findings highlighted areas for further research and analysis related to interoperability and data standardisation.”