Czech Central Bank Plans Tenfold Increase in Gold Holdings, New Governor Says Precious Metal ‘Good for Diversification’

By Bitcoin.com - 1 year ago - Reading Time: 2 minutes

Czech Central Bank Plans Tenfold Increase in Gold Holdings, New Governor Says Precious Metal ‘Good for Diversification’

The incoming governor of the Czech National Bank (CNB), Aleš Michl, has said he plans to increase the institution’s gold holdings almost tenfold from the current 11 tonnes to 100 tonnes. Michl also said he will ask the bank’s foreign exchange reserves management team to invest in stocks.

Growing the CNB’s Shareholding

The incoming governor of the Czech National Bank (CNB), Aleš Michl, has said gold is good for diversification because “it has zero correlation with stocks.” Therefore, under his stewardship, the CNB hopes to increase its holdings of the commodity from the current 11 tonnes to 100 tonnes or even more. However, this will be done gradually, the incoming governor said.

With this plan, which sees the bank’s gold holdings grow by almost ten times, the new CNB boss, as one report noted, is seemingly following in the footsteps of other European central banks that have either repatriated or bought more tonnes of gold. For instance, the Hungarian central bank revealed in 2018 that it had grown its gold holdings tenfold while the Polish central bank is reported to have done the same in 2019.

Meanwhile, in his remarks during a wide-ranging interview with the Czech publication Ekonom, Michl, a conservative economist, also said he will propose to increase the CNB’s shareholding in stocks from the current 16 percent of reserves to 20 percent or more. He argued that central banks in Switzerland and Israel are already doing this and so are large state sovereign wealth funds.

A Profitable CNB

Concerning the management of foreign exchange reserves, Michl, who is set to begin his six-year tenure as governor on July 1, said he will encourage the management team to invest the reserves in stocks. When asked about the risks of using reserves this way, Michl responded:

Yes, yield volatility would then be higher – that’s the risk. But the expected return, in the long run, would also be higher. Together with our CNB colleagues Michal Škoda and Tomáš Adam, we are trying to calculate this risk as part of a research project. My vision is to have a long-term profitable CNB.

Michl added that his goal is to make the expected returns on the CNB’s assets exceed the cost of the central bank’s liabilities. According to him, the CNB’s balance sheet and its income statement may seem unimportant to others, but are important to him.

Once the CNB starts to make a positive return, the generated profit will be used to “replenish the reserve fund and other funds created from the profit.” The surplus profit will be transferred to the state budget, Michl said.

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Original source: Bitcoin.com