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, said he plans to increase the institution’s gold holdings by almost tenfold from the current 11 tonnes to 100 tonnes. Michl also said he would ask the management team of the bank’s foreign exchange reserves to invest in shares.

Increasing the Stock of the CNB

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

With this plan, which sees the bank’s gold holdings grow by almost tenfold, the new CNB chief, as one report noted, it apparently follows in the footsteps of other European central banks that have either repatriated or bought more tonnes of gold. For example, the Hungarian central bank revealed in 2018 that it has doubled its gold holdings while the Polish central bank is reported do the same in 2019.

Meanwhile, in his remarks while extensive interview with the Czech publication Ekonom, Michl, a conservative economist, also said he would propose to increase CNB’s shareholding in shares from the current 16 per cent of reserves to 20 per cent or more. He argued that central banks in Switzerland and Israel were already doing so, as well as large state sovereign wealth funds.

CNB revenue

Regarding the management of foreign exchange reserves, Michl, who intends to begin his six-year term as governor on July 1, said he would encourage the management team to invest the reserves in stocks. Asked about the risks of using reservations in this way, Michl replied:

Yes, yield volatility would be higher then – 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 profits from the CNB’s assets outweigh the cost of the central bank’s liabilities. According to him, the CNB’s balance sheet and its income statement may seem insignificant to others, but they are important to him.

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

What are your thoughts on this story? Let us know in the comments section below.

Terence Zimwara

Terence Zimwara is a Zimbabwean award-winning journalist, author and writer. He has written extensively on the economic problems of some African countries and also how digital currencies can provide Africans with an escape route.