Czech central bank buys $1 million in bitcoin, other crypto assets for testing

By Jan Lopatka

PRAGUE (Reuters) -The Czech central bank said on Thursday it had bought $1 million of bitcoins and other blockchain-based digital assets to gain experience with digital markets, and will evaluate the project in two to three years.

The portfolio is mostly made up of bitcoins, but also includes U.S. dollar-based stablecoins and a tokenised deposit, all bought through a regulated exchange it said, without giving specifics on the market used or exact assets.

"The purpose of the portfolio is to gain practical experience with holding digital assets and to implement and test the necessary related processes," the bank said.

It will be held separately from the bank's international reserves, and will not be actively increased.

"In the test portfolio, the central bank will test the whole chain of processes associated with the purchase, holding and management of digital assets – from technical administration of keys and multi-level approval processes, through crisis scenarios and security mechanisms, to verifying anti-money-laundering compliance," the bank said.

Governor Ales Michl, who originally floated the idea of looking at bitcoin in January, said new ways of making payments and investments were emerging, and the bank wanted to be ready.

"It is realistic to expect that, in the future, it will be easy to use the crown to buy tokenised Czech bonds and more besides – with one tap an espresso; with another an investment such as a bond or another asset that used to be the preserve of larger investors," Michl said in the statement.

"As a central bank, we want to test this path."

The bank will be doing transactions with the portfolio for purposes of the experiment.

The portfolio's value may change over time due to price fluctuations and composition may change by the bank testing purchases of other digital assets.

LEGAL, OTHER BARRIERS TO INCLUSION IN RESERVES

The bank said it would assess the project, leaving open the question of whether digital assets could become part of reserves in the future, and in what form.

The CNB's first idea of looking at bitcoins for reserves received a cold reception from the European Central Bank, whose President Christine Lagarde said she believed bitcoins would not become reserve assets of EU members.

Although the Czech Republic does not use the euro, it is part of the European Union and its system of central banks.

Buying the digital assets outside reserves, however, was compliant with Czech and European legislation, the CNB said.

The ECB declined to comment.

The Czech bank said on Thursday it could already invest in bitcoin in line with legal requirements through an exchange-traded fund, but this was not now on the agenda due to bitcoin's short track record and other characteristics making it, for now, an immature asset.

(Reporting by Jan Lopatka, additional reporting by Balazs Koranyi; Editing by Andrew Heavens and Ed Osmond)