By Nermeen Nabil Khear 
Czech National Bank (CNB) Governor Aleš Michl wants to convert billions of euros of the country’s reserves into Bitcoin.
As reported by Financial Times, this would be the first time a Western monetary institution would do this. Governor Michl said he would present a plan to the board to invest in Bitcoin to diversify the Czech National Bank’s reserves at a meeting on Thursday.
Should the board approve this, he said the Czech National Bank could eventually hold as much as 5% of its €140B of reserves in Bitcoin.
Michl noted that demand for BTC had surged in recent years after investment management firm BlackRock and other firms started offering Bitcoin exchange-traded funds last year.
He also referenced US President Donald Trump’s commitments to deregulation and the increasing influence of cryptocurrency executives on his administration. Last week, Trump issued an executive order establishing a working group to assess the potential creation of a national digital asset reserve.
Michl pushes for Bitcoin diversification, defying traditional central bank views
Michl said Bitcoin looks like a good asset for diversifying the Czech‘s assets. He said that while people like Trump could possibly cause a speculative bubble in BTC, the trend would remain on the rise even without their support because more people are now regarding it as an alternative investment.
In December, Federal Reserve Chair Jay Powell said the US central bank has no Bitcoin. Historically, central banks have kept their reserves in conservative assets like US Treasuries and other highly rated bonds. A few hold equities, but very few have publicly explored investments in cryptocurrency.
Michl claims to have “a completely different philosophy” regarding Bitcoin than his peers. He describes himself as venturing where nobody else has ventured, especially when it comes to other bankers. As a person who has run an investment fund, Michl sees himself as a typical investment banker, with a typical investment banker’s preference for profitability.
Central banks debate crypto investments, with some cautioning against risks
Among central bankers cautioning against the risks of investing in cryptocurrencies is Joachim Nagel, governor of the Bundesbank. This month, he compared Bitcoin to “digital tulips,” alluding to the 17th-century speculative bubble and subsequent collapse in tulip bulb prices.
European Central Bank officials stated last year that “the fair value of Bitcoin is still zero” and argued that it is “not suitable as a means of payment or as an investment.” Former ECB official Benoît Cœuré has also called Bitcoin the “evil spawn of the financial crisis.”
El Salvador, however, has been a notable supporter of cryptocurrency, making Bitcoin legal tender in 2021. According to its National Bitcoin Office, the government currently holds 6,048 Bitcoins, valued at around $621 million. However, the Central American nation scaled back its crypto-related ambitions late last year as it sought to secure a funding agreement with the IMF.
Additionally, some central banks are experimenting with digital currencies, partly in response to the growing influence of cryptocurrencies.
Michl thinks more central banks may adopt his approach in the next five years, as several funds and commercial banks have changed their views to include crypto in their investment portfolios.
The Czech National Bank plans to shift its equity portfolio toward US stocks
According to the Czech National Bank, if the Czech central bank had held 5% of its foreign reserves in Bitcoin over the past decade, its annual returns would have increased by 3.5 percentage points. Still, the investment would have also seen twice the volatility.
As Michl reported, any significant investment by a central bank in a Bitcoin ETF can move the coin’s price. He said 5% of their assets is a lot of money, even for the Bitcoin market.
The central bank has €140 billion in foreign exchange reserves, which comprise about 45% of the Czech Republic’s GDP. The Czech National Bank already stands out among central banks for having 22% of its portfolio in equities, with the aim of having half of this in US stocks over the next three years, from 30% currently. Michl said they are buying gradually and in very small steps because stock prices are at record highs.
While the Czech Republic remains one of seven EU countries outside the Eurozone, President Petr Pavel reignited the debate on adopting the euro in his New Year’s address, suggesting that paying salaries in the European currency, similar to Germany, could foster future prosperity.
However, Michl refused the notion, saying that there was not enough price convergence and public support to recommend giving up the Czech koruna any time soon. Michl pointed out that the president is a military man and he is an economist by training, given that Pavel was a NATO commander.
He also argued that while adopting the euro is advantageous in the case of political instability, independence and the ability to control monetary policy are useful in the fight against inflation.
Michl also indicated that it was “very likely” his bank would reduce interest rates by 25 basis points next week, bringing them down from 4%, continuing the rate-cutting cycle that started in December 2023.
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This articles is written by : Nermeen Nabil Khear Abdelmalak
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