The BIS Innovation Hub released a report on Project Promissa, a proof of concept that explored tokenizing promissory notes. The main participants in the project were the Swiss center of the BIS Innovation Hub, the Swiss National Bank (SNB) and the World Bank, with the IMF observing.
While promissory notes are an old and pretty broad type of IOU, the context of the experiment was promissory notes issued by government ministries of finance to multilateral development banks, such as the World Bank or the Asian Development Bank. In other words, a Ministry of Finance will issue a promissory note promising to fund the World Bank according to a schedule.
Today those promissory notes are paper-based, signed with wet signatures, couriered between countries and held in vaults at central banks. As funds are released, the ministry and development bank each hold their own records that have to be kept in sync by sending messages between them.
Tokenization benefits
The trial found that tokenizing the promissory notes had four key benefits. Firstly, by using a blockchain as a single source of truth, it eliminated the need to reconcile the separate records of the ministry and the development bank. Secondly, replacing wet signatures with multiparty signatures radically speeds up events such as encashing the note. The timescale compressed from weeks to seconds. Thirdly, given the activities relating to the promissory notes are only shared between the relevant parties, privacy is preserved. Finally, each party has full control over their own activities in relation to the promissory notes.
The trial used Digital Asset’s Canton blockchain.
“By exploring how member contributions can evolve through tokenised promissory notes, this project helps us reimagine a key part of our financial architecture and it is a powerful example of how blockchain can be harnessed for global good,” said Jorge Familiar, VP and Treasurer, World Bank.
Mr. Familiar and the World Bank previously collaborated with the Swiss National Bank to test the use of its pilot wholesale CBDC when it issued a CHF 200 million digital bond on the SIX Digital Exchange.
