- Central banks are testing smart contracts to manage monetary policy in blockchain-based systems.
- A joint study by the Federal Reserve Bank of New York and the BIS Innovation Hub Swiss Centre introduced a customizable toolkit for these experiments.
- The prototype showed speed and flexibility, allowing central banks to respond quickly to market changes in hypothetical scenarios.
- The research found that smart contracts could give central banks more options in crisis response but noted infrastructure challenges.
- The study used Ethereum-based technology and stressed smart contracts’ importance if tokenization becomes widespread in finance.
Central banks are running new tests using smart contracts to carry out monetary policy in digital, token-based environments. On May 15, the Federal Reserve Bank of New York and the BIS Innovation Hub Swiss Centre revealed results from their research, which explored using these technologies to make central banking operations faster and more adaptable.
Their joint initiative, called Project Pine, piloted a “generic customizable monetary policy tokenized toolkit.” According to the Bank for International Settlements (BIS), this toolkit let central banks rapidly change policy tools and instantly manage liquid and illiquid assets in test cases. “The smart contract toolkit was fast and flexible. In hypothetical scenarios, the central bank was able to add and change tools instantly,” the BIS stated in its report.
The report highlighted that smart contracts—digital programs that run automatically based on set rules—could become central to monetary policy if the finance industry further adopts tokenization, the process of turning assets into digital tokens on a blockchain. In a 10-minute test scenario, the framework let central banks adjust collateral criteria and swap liquid collateral for illiquid types as market values shifted. They could also set up new facilities offering reserves and change interest rates on those reserves immediately.
“This speed, coupled with the ability to adjust any of the parameters at any time, gives central banks flexibility in responding to unforeseen events and fast-moving crises,” the BIS noted. The report also cautioned that most financial infrastructure was not designed for these advanced tools, raising challenges for implementation.
Project Pine used Ethereum’s ERC-20 token standard—a common blockchain format for digital tokens—along with additional access controls. The study comes as traditional financial institutions continue to explore blockchain technology. At the Consensus 2025 conference, a DTCC Digital Assets executive called stablecoins an ideal tool for managing collateral in real-time financial transactions.
For further details, interested readers can view the full BIS Project Pine report.
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