The central bank is serious about cryptocurrencies. It bought shares of the Coinbase exchange
The Czech National Bank bet on cryptocurrencies when it bought shares in Coinbase for the first time in its history. It takes advantage of the fact that this most famous cryptocurrency exchange and Bitcoin itself are strengthening their positions in the market and are becoming increasingly attractive to many investors.
After this year, the governor of the Czech National Bank, Aleš Michl, let it be known that he would be pleased if his institution bought bitcoins worth about 140 million crowns into its reserves, his statement caused a stormy reaction.
"Beautiful third place. The Czech Republic would become the third country in the world to invest part of its foreign exchange reserves in bitcoin,"
sneered David Marek, the chief economist of Deloitte Czech Republic, on the X network.
Even former central bank chief Jiří Rusnok does not consider it a fortunate move. Foreign exchange reserves of the central bank of a small open economy with its own currency are one of the key tools for fulfilling the basic goal of the central bank, i.e. price and financial stability, as stated for the portal E15. However, according to him, cryptocurrencies as extremely volatile and risky assets are definitely not suitable for this purpose.
Are the examples Salvador and Bhutan?
The analyst Lukáš Kovanda is much more receptive to cryptocurrencies.
"Crypto represents a competitive monetary system. If it took off more, governments around the world would lose the ability to comfortably pay their debts by inflating the money of ordinary people. That's why crypto is suppressed in the name of consumer protection,"
wrote the economist of LP-Life. He refers to the example of Salvador, where until recently, bitcoin was officially used as a legal form of payment. The aforementioned "Bitcoin Country", as the country was nicknamed, has declined from using bitcoin for payments this year, but continues to hold it in its foreign currency reserves.
The International Monetary Fund pushed for the regulation of bitcoin use in El Salvador, making it a condition for a loan of 1.4 billion dollars, or about 34 billion crowns. At the same time, a survey by Central American University showed that more than 90 percent of people in El Salvador did not use bitcoin anyway.
Are you wondering who else holds their reserves in cryptocurrencies? It's Bhutan, which has amassed nearly 1.3 billion dollars worth of bitcoins since 2020. In addition to this, they have over a million dollars worth of the cryptocurrency ethereum.
The matter has one catch. If we were to include cryptocurrencies in the reserves ourseleves, the Czech Republic would join the family of countries that can hardly be claimed to be economic giants. Some analysts also argue that it would definitely not improve our prestige.
Cryptocurrencies are ours!
The more surprising news came in July when the portal Seznam Zprávy reported that our central bank had decided for the first time in its history to buy shares of Coinbase. All this is happening in the light of the fact that not only this most famous cryptocurrency exchange, but also bitcoin itself, are showing a fairly strong strengthening of their positions and the US House of Representatives is dealing with proposed laws that are intended to provide a legislative framework for digital currencies. The Coinbase exchange was also included in the American S&P 500 stock index in the spring.
Although this does not yet mean that the Czech National Bank would have cryptocurrencies directly in its reserves, as Michl stated at the beginning of the year, it is undoubtedly a significant step that brings our institution closer to it. Supporters of cryptocurrencies, which are backed by US President Donald Trump, are celebrating on multiple fronts during the summer. Our news portal relies on documents from the US Securities Commission, which investors must report such purchases to.
The fact that profit maximization is not an empty concept for the central bank is evidenced by its economic results. Last year, it achieved a record profit exceeding 150 billion crowns. It earned 93 billion crowns from US shares alone. For comparison: the year before it made about 55 billion in profit. The economic result for the last 12 months was largely due to investments in the S&P 500 index, which now includes the Coinbase exchange.
Thin ice
Despite the debatable decision of central bankers to venture onto thin cryptocurrency ice, it's clear that this area cannot be overlooked. Therefore, our government approved the law on digital finances last year, which sets up the regulation of the market with crypto assets and gives the supervisory power over it to the Czech National Bank.
The standard primarily sets obligations for issuers of crypto assets and traders with them, who must submit audited financial statements to the Czech National Bank and regularly evaluate measures for the protection of property entrusted to them by clients. The law also sets the conditions for professional competence for traders with crypto assets. The central bank as the supervisory body, in connection with this, has the right to impose a fine of up to 50 million crowns for violation of the rules, or even to prohibit the activity of the service provider associated with crypto assets. This puts it paradoxically in a special position - on one hand, it invests itself in cryptocurrencies, on the other, it supervises others, whether and how they trade with them.
Sources: author's article, Seznam News, ČNB, ČTK, Central American University
