Czech National Bank buys Bitcoin for first time to build $1 million test portfolio

The Czech National Bank (CNB) has purchased Bitcoin for the first time in its history to create a $1 million test portfolio. The pilot digital asset basket will also include a USD stablecoin and a tokenized deposit on the blockchain.

The CNB stated on November 13 that the bank’s board approved the purchase on October 30, following discussions about the possibility of investing in digital assets. However, the purpose of the portfolio is to gain practical Hodling experience and to test out the processes, hence the total amount invested will not be actively increased.

The bank’s analysis indicates that crypto is poised to become mainstream and may gain increasing acceptance in the future. In this light, the CNB said it intends to be prepared for this future. However, it clarified that it is not planning to add Bitcoin to its international reserves anytime soon. The bank’s board is yet to decide on the other investment classes covered in the analysis.

Michl claims the idea has stewed since January

Czech National Bank Governor Aleš Michl said he conceived the idea of a test portfolio at the beginning of this year. The aim was (and is) to try out “the decentralized” Bitcoin from the perspective of a central bank and evaluate its potential in diversifying the bank’s reserves. Hence, the bank’s board prepared the analysis report. 

Michl disclosed that subsequent internal meetings widened the scope to include the tokenization of assets and future payments. In effect, stablecoins and tokenized deposits were included alongside Bitcoin. Even CZ thinks they need some BNB.

“We will inform the public about our experience on an ongoing basis and present an overall assessment of the project in approximately two to three years.” 

–Aleš Michl, Governor of CNB

Michl explained that the central bank wants to test emerging methods of investing and paying, as these technologies are expected to expand in the near future. He added that it would be realistic to expect that, in the future, CNB will make it easy to buy tokenized Czech bonds using the Koruna.

CNB launches CNB Labs to test technologies

The Czech central bank has simultaneously launched the CNB Lab innovation hub to oversee the testing of technologies and trends impacting the financial market or monetary policy. Meanwhile, Michl emphasizes that CNB Lab is intended as a platform to gather experience and insights from testing various digital assets and blockchain solutions. 

The innovation hub will also experiment with AI tools, support innovations in payments, including instant payments, and undertake other projects related to the digitization of the financial sector. Michl says the idea is to gain hands-on experience, build professional capacity, and be as well prepared as possible for the future.

The CNB has also held bilateral consultations with ECB and IFM representatives on the statistical reporting of potential central bank Bitcoin holdings. However, all three agreed that directly held Bitcoin is not a reserve asset. 

Meanwhile, CNB stated that it will continue to hold Bitcoin for internal analysis. The aim is to test the whole chain of processes associated with the purchase, holding, and management of crypto.

CNB is looking to discover everything from the technical administration of keys and multi-level approval processes. The central bank also wants to test its response to crisis scenarios and security mechanisms to verify AML compliance.

Part of the testing at the CNB Lab will include comparing different types of digital assets and their various properties. The CNB will also test how to use and settle the digital assets in trading scenarios.

It will also record them in its accounts and audit their holdings. The bank’s board decided it is essential to maintain and develop in-house expertise. Practical experience will enable CNB staff to gain and transfer knowledge across teams and departments.   

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