The Federal Reserve Bank of New York and the Bank for International Settlements (BIS) have released a joint study examining the potential for central banks to implement monetary policy operations within tokenized wholesale financial markets. The research, known as Project Pine, was conducted by the New York Innovation Center at the New York Fed in collaboration with the Swiss Centre of the BIS Innovation Hub.

Project Pine explored how programmable smart contracts could be used by central banks in a future where commercial banks and other private financial institutions adopt tokenization for wholesale payments and securities settlement. The project developed a prototype toolkit designed to be adaptable across various jurisdictions and currencies, allowing central banks to customize it according to their monetary policy frameworks. This toolkit can support functions such as paying interest on reserves, open market operations, and collateral management.

The toolkit was tested against ten hypothetical scenarios reflecting both normal market conditions and stress events, using historical data inputs related to past market occurrences like interest rate cycles and periods of liquidity strain. The prototype successfully executed intended operations under different market conditions, aligning with central bank liquidity goals.

Project Pine's findings underscore areas requiring further research, particularly concerning interoperability and data standardization. The initiative aims to foster public discussion on integrating new technologies into the financial sector.

While BIS Innovation Hub projects are experimental and do not represent official policies or views of the Federal Reserve Bank of New York or the Federal Reserve System, they aim to provide public goods beneficial to global central banking.

The New York Innovation Center at the Federal Reserve Bank of New York focuses on merging finance, technology, and innovation since its establishment in 2021 alongside the BIS Innovation Hub. It conducts research to advance central banking practices globally.

Similarly, the BIS Innovation Hub promotes international collaboration among central banks on innovative financial technologies, developing insights into trends affecting central banking worldwide.