Most recently, many international financial institutions, including multilateral development banks are partly funded by financial instruments known as promissory notes, most of which are still paper-based.
While the current system provides the operational controls for member nations to make subscription and contribution payments to institutions like the World Bank, the custody of outstanding promissory notes can be digitised to address operational challenges and enhance efficiency.
Project Promissa is a joint experiment of the BIS Innovation Hub Swiss Centre, the Swiss National Bank and the World Bank that aims to build a proof of concept (PoC) of a platform for digital “tokenised” promissory notes. The International Monetary Fund is participating in the project as an observer.
Using distributed ledger technology, Project Promissa intends to simplify the management of the notes and provide a single source of truth for all counterparties throughout the notes’ lifecycles. That means that the government of a member nation and its central bank, acting as the designated custodian, will have a comprehensive overview of all notes outstanding with different international financial institutions. And, vice versa, international financial institutions, such as the multilateral development banks, will have uniform visibility of the outstanding notes held by different central banks.
The volume of promissory notes across international financial institutions is significant: for example, two of the World Bank’s largest entities, the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA), both have a substantial amount of notes pledged by member nations.
The goal is to complete the PoC and testing by early 2025.
While the project aims to simplify the management of promissory notes between member nations and international financial institutions, in the future it could be extended to include payments (or encashments) associated with such notes by integrating tokenised payment systems based on private or public money.
