Last November the BIS Innovation Hub revealed it was planning a project with the Swiss National Bank and the World Bank to tokenize promissory notes. Yesterday it provided a few details, including the project’s name, Promissa, and a target deadline of early 2025 for completing the proof of concept.
The IMF will participate as an observer.
Today promissory notes are largely paper based, but the objective isn’t purely to digitize them. Using a distributed ledger will create a single source of truth and provide an overview for all parties. So countries that make financial commitments to the World Bank, the IMF and potentially other institutions can see all their outstanding promissory note commitments in one place. And the World Bank can also have a single view of all the promissory notes.
We hazard a guess the World Bank has a database to keep a tally of all the uncashed promissory notes. However, the advantage of a shared system is that when there are changes, there’s no need for emails or reconciliations. That applies to new promissory notes or encashment of existing ones. While that might seem a tedious back office task, reconciliations waste a colossal amount of time, and that time could instead be used elsewhere productively.
In future the project might also include the encashment of promissory notes where the cash leg uses a central bank digital currency (CBDC) or a tokenized deposit.
Other DLT promissory note projects
Given that DLT has been around for a while, this isn’t the first time promissory notes have been tokenized. Four German institutions started using DZ Bank’s finledger in 2019. The other banks are DekaBank, dwpbank and Helaba.
A Swiss startup, Obligate (formerly FQX), first piloted its tokenized promissory note solution with Credit Suisse. It started using a permissioned blockchain but migrated to the Polygon blockchain. Backers include the SIX Digital Exchange and stablecoin issuer Circle.
