The boss of the Czech Republic’s central bank wants to pump billions of euros of the country’s reserves into Bitcoin, a landmark move that would likely upset fellow European central bankers.
Czech National Bank (CNB) governor Aleš Michl floated the idea of his country becoming the first in Western Europe to hold some of its reserves in cryptocurrency, suggesting the CNB could hold up to 5% of its €140 billion ($145.6 billion) in reserves in Bitcoin.
Michl told the Financial Times that he would present a plan to the board of the CNB to invest in Bitcoin, arguing that it would help the bank diversify its assets.
He added that the election of Donald Trump, which has boosted the value of Bitcoin amid deregulation expectations, has created both a bubble and an opportunity.
“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,” Michl told the FT.
The CNB stands out among its European peers for its openness to investing in unconventional assets; central banks tend to prefer stable or strategic assets, like gold or foreign currency.
As of September last year, 22% of the CNB’s portfolio was held in equities, more than other central banks. Michl wants half of the CNB’s equities to come from U.S. stocks, up from the current share of 30%.
Despite Michl’s enthusiasm, he was cautious that any investment in Bitcoin, which could reach €7 billion ($7.3 billion), could become worthless if the risky asset crashes.
“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.
David Havrlant, chief economist for the Czech Republic at ING, told Fortune that Michl's plans go with the CNB's longer-term goal of diversifying its investable assets and building a profitable portfolio.
"I believe that Bitcoin is more and more perceived as a standard asset and expect other cntral banks to follow suit. The CNB has many times proven its role as a front runner, be it inflation targeting or macroprudential framework," said Havrlant.
Fellow central bankers
Michl’s overtures toward Bitcoin aren’t likely to win much support among his fellow central bankers.
Earlier in January, Bundesbank chief Joachim Nagel called Bitcoin “digital tulips,” a reference to the 17th-century speculative bubble dubbed Tulip Mania that saw the rapid rise and sudden collapse in the price of flower bulbs.
Nagel said he was worried by German political party FDP floating the idea of using Bitcoin as a reserve asset, similar to Michl’s plans.
“Reserve assets must be secure, liquid, and transparent. Bitcoin is none of these things,” said Nagel.The Czech economy shares close economic ties with its neighbor Germany, which is its main trading partner and shares a similar industrial composition of heavy manufacturing dependence.
Both countries continue to battle inflation, which Michl said his central bank could do better without joining the euro, in contrast to President Petr Pavel's calls to abandon the Czech koruna in favor of the eurozone's collective currency.
“Our president is a military strategist and I’m an economist,” said Michl.
