Aleš Mihir, the next president of the Czech National Bank (CNB), said the bank plans to increase its gold holdings nearly tenfold to 100 tons from the current 11 tons. Mihir also said that he will ask the bank’s reserve management team to invest in equities.
Increase CNB’s holdings
Ales Mihir, the incoming president of the Czech National Bank (CNB), said that gold is a good diversifier because “it has zero correlation with equities. Therefore, under his leadership, the CNB hopes to increase its gold holdings from the current 11 tons to 100 tons or even more. However, this will be done gradually, the incoming governor said.
As one report points out, the new CNB boss appears to be following in the footsteps of other European central banks that have either repatriated gold or purchased more tons with this plan to increase the bank’s gold holdings almost tenfold. For example, Hungary’s central bankrevealed that it had increased its gold holdings tenfold in 2018and Poland’s central bank reportedlydid the same in 2019.
Meanwhile, in a wide-ranginginterviewwith Czech publisher Ekonom, conservative economist Michiel also said he would propose increasing the CNB’s shareholding from its current 16% of reserves to more than 20%. He argued that the Swiss and Israeli central banks have already done this, as have large national sovereign wealth funds.
Profitable CNBs
Mitchell, who will begin his six-year term as president on July 1, said that with regard to the management of foreign currency reserves, he will encourage his management team to invest in equities. When asked about the risks of using foreign currency reserves in this way, Mitchell replied.
Yes, in that case, the volatility of the yield will be higher – that is the risk. But in the long run, the expected return is also higher, and I am trying to calculate this risk as part of a research project with my colleagues at CNB, Michal Shkoda and Tomasz Adam. My vision is to have a CNB that is profitable in the long run.
Mitchell added that his goal is to make sure that the expected return on the CNB’s assets exceeds 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 it is important to him.
Once the CNB begins to generate positive earnings, the profits generated are used to “replenish reserves and other funds generated from profits.” Surplus profits are transferred to the state budget, Mitchell said.
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