The head of the Czech National Bank wants to plough billions of euros’ worth of the country’s reserves into bitcoin, a groundbreaking move that could make it the first western central bank known to hold crypto assets.
Governor Aleš Michl told the Financial Times that he would present a plan to the board to invest in bitcoin as a way of diversifying the CNB’s reserves at a meeting on Thursday. Should the board approve this, then the CNB could eventually hold as much as 5 per cent of its €140bn of reserves in bitcoin, he said.
While acknowledging bitcoin’s “extreme volatility” and limited record, Michl highlighted wider investor interest in bitcoin since BlackRock and other firms last year launched bitcoin exchange traded funds.
He also pointed to US President Donald Trump’s pledges on deregulation and the growing influence of cryptocurrency executives over his administration. In an executive order last week, Trump set up a working group to evaluate the creation of a national digital asset stockpile.
“For the diversification of our assets, bitcoin seems good,” Michl said in an interview. “Those [Trump] guys can now kind of create some bubble for bitcoin, but I think the trend would be an increase without those guys as well, because it’s an alternative [investment] for more people.”
Federal Reserve chair Jay Powell confirmed in December that the US central bank did not hold any bitcoin as it was not in the list of assets Congress allowed it to purchase. “We are not looking for a law change at the Fed,” Powell said at the time.
Central banks have traditionally parked their reserves in conservative assets such as US Treasuries and other forms of highly rated bonds. Some have holdings in equities, but almost none have publicly ventured into crypto.
Michl said he had “a totally different philosophy” about bitcoin to his counterparts.
“Of course, if you compare my position with other bankers, then I’m the one entering the jungle, or the pioneer,” Michl said. “I used to run an investment fund, so I’m a typical investment banker I would say, I like profitability.”
Among central bankers to have warned about the risks of investing in cryptocurrencies is the governor of the Bundesbank, Joachim Nagel, who this month compared bitcoin to “digital tulips”, a reference to a 17th century speculative bubble and then collapse in the price of the bulbs.
European Central Bank officials wrote last year that “the fair value of bitcoin is still zero”, adding that “bitcoin is not suitable as means of payment or as an investment”, while former ECB official Benoît Cœuré has previously referred to bitcoin as the “evil spawn of the financial crisis”.
El Salvador has been a rare, prominent backer of crypto, making it legal tender in 2021. The government holds 6,048 bitcoins in its treasury, worth about $621mn, according to its National Bitcoin Office. But the Central American country scaled back its crypto ambitions late last year in order to reach a funding deal with the IMF.
In addition, some central banks are piloting digital currencies, partly in response to the threat posed by cryptocurrencies.
Michl said more central banks could follow his lead within the next five years, just as several funds and commercial banks had recently changed tack and added crypto to their portfolios. Some pension funds have begun investing in crypto.
However, he added that the investment could prove to be worthless.
“It’s possible to have a big range of outcomes, that bitcoin will have a value of zero or an absolutely fantastic value . . . but in our history we have also had some stocks like Enron or the payment company Wirecard, so we have some experience with bad investments, so, yes, I’m ready [for a possible Bitcoin collapse],” he said.
“But I’m saying that my goal is to diversify the portfolio, so if bitcoin is good [for that], then let’s have it.”
If the Czech bank had held 5 per cent of its foreign reserves in bitcoin over the past decade, its annual returns would have increased by 3.5 percentage points, but would have also doubled in volatility, according to the CNB.
Michl said any large investment by a central bank in a bitcoin ETF could in itself impact the coin’s price. “Five per cent [of our assets] is a lot of money, even for the bitcoin market,” he said.
The central bank’s €140bn in foreign exchange reserves are equivalent to about 45 per cent of the Czech Republic’s GDP. The CNB already stands out among central banks because 22 per cent of its portfolio is in equities, and Michl wants half of that to be in US shares in about three years’ time, up from 30 per cent currently.
“We are buying gradually and in very small steps because the [US stock] prices are the highest in history,” he said.
The Czech Republic is one of seven EU countries to have stayed outside the Eurozone, but in his New Year’s address to the nation President Petr Pavel revived the debate by urging a switch to the euro. He argued that “it would certainly promote our future prosperity if [salaries] were to be paid in the European currency, just as they are in Germany”.
However Michl dismissed this idea, saying there was not enough price convergence or public support to abandon the Czech koruna in the foreseeable future.
“Our president is a military strategist and I’m an economist,” Michl said, referring to Pavel’s background as a Nato commander. “If you have political problems, it can be good to have the euro, but being independent and having an independent voice on monetary policy seems good for us to fight inflation.”
He added it was “very likely” that his bank would cut interest rates by 25 basis points next week from 4 per cent, resuming a cycle of rate cuts that began in December 2023.
Additional reporting by Nikou Asgari in London and Claire Jones in Washington
