- The Czech National Bank may invest 5% of its €140B reserves in Bitcoin, marking a shift in central bank strategy.
- Governor Aleš Michl sees Bitcoin as a strong reserve asset despite skepticism from European financial leaders.
- The CNB plans to boost US stock holdings while resisting euro adoption to maintain monetary policy control.
The Czech National Bank (CNB) may become the first Western central bank to invest in Bitcoin. Governor Aleš Michl plans to propose Bitcoin investments to the board during a meeting on Thursday. If approved, the CNB could allocate up to 5% of its €140 billion reserves to Bitcoin.
Bitcoin as a Reserve Asset
Michl believes Bitcoin could strengthen the CNB’s reserves. He said Bitcoin demand has grown due to major financial institutions offering Bitcoin exchange-traded funds. He also noted the increasing influence of cryptocurrency in US financial policy.
Other central banks remain skeptical about Bitcoin. The European Central Bank (ECB) has argued that Bitcoin has no fair value. Bundesbank Governor Joachim Nagel compared Bitcoin to a speculative bubble similar to the tulip mania of the 17th century.
Market Impact and Risks of Bitcoin Investment
Michl said a central bank investment in Bitcoin could affect its price. He emphasized that 5% of CNB’s reserves is a significant amount. He added that Bitcoin’s value would likely increase due to growing institutional interest.
The CNB’s internal analysis showed Bitcoin investments could have increased past returns. A 5% Bitcoin allocation over the last decade would have raised annual returns by 3.5% points. However, the same investment would have also doubled volatility.
CNB’s Existing Investment Strategy
The CNB has already adopted an unconventional investment approach. It holds 22% of its reserves in equities, which is rare for central banks. Over the next three years, it plans to increase its US stock holdings from 30% to 50%.
Michl said the bank will buy US stocks gradually. He stressed that stock prices are at record highs. He added that the CNB remains cautious about large investments.
Czech Republic’s Stance on the Euro and Interest Rates
The Czech Republic has debated adopting the euro. President Petr Pavel suggested the euro could benefit the economy. However, Michl opposed the idea, citing a lack of price convergence and public support.
Michl emphasized the advantages of keeping the Czech koruna. He said an independent currency allows better monetary control. He added that this flexibility helps in managing inflation.
The CNB is likely to cut interest rates soon. Michl said the bank could lower rates by 25 basis points next week. The CNB began reducing rates in December 2023 to support economic growth.
