In May, the New York Fed’s Innovation Center and the Bank for International Settlements published the much-trailed Project Pine report, a 57-page technical deep-dive that puts a provocative thesis on the table: even if wholesale finance migrates to tokenised ledgers, central banks can still run the show by wrapping monetary-policy tools inside smart contracts. The prototype paid interest on reserves, conducted standing repos and managed collateral, all on a permissioned Ethereum fork. The takeaway, in the report’s own words, is that “central bank levers remain effective in a fully tokenised settlement landscape.”
The claim lands at a delicate moment. Every major market infrastructure, from DTCC in the United States to Euroclear in Europe, is experimenting with tokenised bonds and deposits. Advocates argue that smart contracts could cut settlement risk and automate margin calls. Skeptics wonder whether the very act of automating money markets erodes the discretion policymakers rely on when crises hit.
What Pine actually proved
The Pine codebase built a generic toolkit: parametric standing repos, interest-on-reserve tokens and an auction algorithm that clears collateral in seconds. Test runs showed the engine could handle normal and stressed liquidity scenarios. In other words, a smart contract can do what the Fed’s open-market desk already does, only faster and without phone calls.
Importantly, the researchers did not attempt to replicate the Federal Reserve’s full operating framework, nor did they plug the prototype into real Treasury or reserve accounts. Pine is a lab exercise, not a pilot. It answers a narrow question—can we encode the mechanics—while leaving open the bigger one, which is whether code can capture policy-making nuance.
The discretion problem
A textbook repo drains or injects reserves at a known rate against known collateral. The real world is messier. In March 2020, the Fed slashed rates, launched unlimited QE and then tweaked the supplementary leverage ratio when banks refused to expand balance sheets. None of those moves followed a predefined script. They required judgment, sequencing and political sign-off, precisely the things smart contracts struggle to model.
The Pine team argues that contracts can include “central-bank callable” parameters, allowing humans to change rates or collateral haircuts on the fly. That feature solves the narrow governance issue but re-introduces latency, because every parameter update needs to be proposed, audited and pushed to the chain. The advantage over today’s Bloomberg chat messages becomes marginal.
Tokenised plumbing meets real-world pipes
A second blind spot is connectivity. The Pine sandbox assumed banks already hold tokenised Treasuries and reserves on a single ledger. In practice, Treasuries sit at the Fedwire Securities Service and reserves live at the Fedwire Funds Service, neither of which is built on blockchain. Any attempt to bridge them introduces settlement risk that today’s tri-party repo providers backstop. Until the pipes are rebuilt, a Pine-style contract would require constant off-chain reconciliations, negating much of the promised efficiency.
Industry voices are keen to point this out. Dealers on the Securities Industry and Financial Markets Association repo committee note that tokenised collateral could reduce fails but only if the central securities depository tokenises along with the cash side. That is a transformation project, not a code push.
Monetary control or digital theatre
The most contentious question is political. Pine suggests that tokenisation need not undermine monetary sovereignty. Crypto purists think the opposite, that on-chain liquidity will route around official money altogether. The truth is likely somewhere in the middle. If tokenised commercial-bank deposits gain market share, central banks can still influence rates through standing facilities, but the transmission might be slower or less predictable. Smart contracts cannot compel borrowers to use them, they can only make liquidity available.
A telling datapoint is the Fed’s decision, announced the same week as the Pine paper, to start regular morning operations in its standing repo facility. That move echoed April stress when Treasury cash markets wobbled after new tariffs. The tool worked, but only because banks chose to tap it. The episode underlines that liquidity facilities rely on participant behaviour. Putting the same facility on chain will not address the decision calculus banks make when reputational optics collide with funding needs.
Project Pine lays the groundwork
None of this means Project Pine is pointless. By mapping central-bank operations into code, the team built a reference design that market infrastructure providers can critique. Banks experimenting with tokenised collateral now have an open-source benchmark. The paper also forces policymakers to articulate guardrails for a future where crypto rails and legacy rails intersect. That conversation is overdue.
The bigger policy payoff may lie in contingency planning. If tokenised deposits scale faster than expected, regulators will need tools that can plug liquidity holes in minutes, not hours. A Pine-style contract, quality-assured and battle-tested ahead of time, is a better emergency kit than a whiteboard sketch.
The missing link: Confidence can’t be coded
Project Pine shows that central banks can translate their existing levers into code, but it does not prove that coded levers will work in the same way when the next liquidity storm arrives. Monetary policy has always blended mechanics with psychology. Smart contracts excel at the former and ignore the latter. Until researchers crack that gap, programmable open-market operations remain an abstraction, interesting for conference decks but a long way from the New York Fed’s trading floor.
For bankers, fintech engineers and policymakers, the message is cautionary optimism. Tokenisation can streamline money markets, yet the ultimate control knob is still confidence, and confidence is a social contract no blockchain has ever fully automated.
