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

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. But, it will happen slowly, said the incoming Governor.

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. The Hungarian central Bank revealed its gold holdings increased tenfold in 2018, while the Polish centralbank reported that they did the same for 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. His argument was that the central banks of Israel and Switzerland already do this, and large state sovereign wealth fund are doing it as well.

A profitable CNB

Michl’s six-year tenure in the governor’s office will begin July 1. He said that Michl would encourage his management team to make investments in stocks to manage foreign exchange reserves. Michl replied that he was not concerned about the potential risks associated with using reserve money in this way.

Yes, yield volatility would then be higher – that’s the risk. The expected return over time would still be greater. Together with our CNB colleagues Michal Škoda and Tomáš Adam, we are trying to calculate this risk as part of a research project. My goal is for a CNB to be long-lasting and financially profitable.

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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Terence Zimwara

Terence Zimwara, a Zimbabwean journalist, writer and author who has been awarded the Zimbabwe Booker Prize. He is a prolific writer on the economic woes of African countries, as well as digital currencies that can be used to provide an escape path for Africans.