Central Banks Trial Smart Contract Toolkit for Tokenized Monetary Policy Under BIS Project Pine

Central banks are exploring the use of smart contracts to modernize monetary policy tools in tokenized financial systems, according to a new report under Project Pine — a collaborative initiative by the Federal Reserve Bank of New York’s Innovation Center and the Bank for International Settlements (BIS) Innovation Hub Swiss Centre.

The research tested a prototype smart contract-based toolkit designed to simulate central bank operations in a tokenized environment. The results suggest that smart contracts could provide unprecedented speed and flexibility in implementing monetary policy, particularly during financial crises or rapidly changing economic conditions.

Project Pine system overview. Source: BIS

“The smart contract toolkit was fast and flexible,” the BIS noted. In simulated scenarios, central banks were able to instantly modify tools such as collateral requirements and liquidity operations. For instance, within a 10-minute scenario, the central bank adapted collateral criteria and exchanged illiquid assets for liquid ones in response to falling asset values.

The system also demonstrated the ability to deploy new liquidity facilities and adjust interest rates in real time — all through programmable smart contracts. BIS emphasized that this capability could be crucial for central banks responding to extraordinary events or fast-moving market disruptions.

Project Pine, smart contract operations. Source: BIS

“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 report stated.

Project Pine used Ethereum’s ERC-20 token standard, along with an additional layer for access control to ensure operational security and governance.

Despite the promising results, the BIS acknowledged existing infrastructure limitations. Most central bank systems are not currently equipped to support smart contract functionalities, suggesting further development and integration work will be needed.\

Smart contract testing scenario. Source: BIS

The initiative aligns with a broader trend of increasing interest in tokenization within traditional finance. Speaking at Consensus 2025, Joseph Spiro, product director at DTCC Digital Assets, described stablecoins as an ideal instrument for real-time collateral management in financial operations like loans and derivatives.

Project Pine represents an early but significant step toward integrating blockchain-based automation into central banking, offering a glimpse into how the future of monetary policy could evolve in a digitized economy.