The Bank for International Settlements (BIS) and the Federal Reserve Bank of New York tested a prototype platform that automates central bank operations with government bonds using smart contracts.
BIS representatives published a report on the results of Project Pine, a technological prototype demonstrating how central banks can utilize tokenized assets and smart contracts for open market operations (OMO).
The project was developed by the BIS New York Innovation Center in collaboration with the Federal Reserve Bank of New York. Its goal was to assess the feasibility of automating traditional OMO using distributed ledger technology (DLT) and tokenized assets, including government bonds and traditional central bank assets.
Within Project Pine, the following were tested:
- use of a smart contract-based platform to manage OMOs in a delivery-versus-payment (DvP) mode;
- emulation of issuing tokenized government bonds;
- issuance of central bank digital currency (CBDC) tokens for settlements;
- automatic execution of contracts for the purchase and reverse sale of assets under pre-set conditions.
The testing included automatic interest calculation and asset return the next day, allowing assessment of speed, accuracy, and automation of operations that traditionally require multiple parties and manual calculations.
The report emphasizes that the project is experimental and doesn’t indicate an immediate plan to implement smart contracts in the traditional financial system. However, its results provide better insight into the opportunities and challenges that may accompany the transformation of central bank infrastructure through DLT adoption.
Key technical outcomes of Project Pine highlighted by BIS analysts include:
- building an isolated test environment using a permissioned DLT network;
- integration of transaction orchestration into smart contracts;
- implementation of access control and digital identification features for participants.
Project Pine is one of BIS’s key initiatives aimed at exploring the potential of Web3 technologies in public monetary policy. For example, the bank is investigating automated compliance for cross-border transactions within Project Mandala, developing a unified registry for international payments as part of Project Agorá, and preparing for the commercial launch of a CBDC platform in Project mBridge.
