CNB digital assets portfolio marks bold learning experiment for Czech central bank

The Czech National Bank (CNB) is turning theory into practice as it launches a small but strategic experiment around digital assets to study crypto markets from the inside.

CNB: why is the Czech National Bank building a digital asset portfolio?

Governor Aleš Michl says the goal of the Czech National Bank’s (CNB) new “experimental” digital asset portfolio is to gain “real learning” from direct exposure rather than rely on models. He told Central Banking that to understand blockchain and tokenisation, the CNB does not want to “simulate reality” but to “touch it”. Moreover, he argues that “vision without iteration is just a slogan – real artists ship”.

The CNB unveiled the decision in a press release, announcing a $1 million test portfolio that will not be “actively increased”.

The bank did not disclose the exact composition, but said the holdings include bitcoin, dollar‑denominated stablecoins and “tokenised deposits on the blockchain”. However, it stressed that the initiative is tightly ring‑fenced and experimental.

According to the statement, “the portfolio was purchased in a market operation as part of the CNB’s standard financial activities outside the international reserves”. The bank added that the portfolio’s “marginal size” means it will not influence the financial performance of the CNB’s broader balance sheet. This structure is designed to protect core reserves while allowing staff to build hands‑on experience.

Why did the CNB choose bitcoin and how does it assess the risk?

Michl says the bank selected bitcoin because it is “similar to gold”, having “historically shown low correlation with other assets”. He notes that there are not many instruments “suitable” for diversifying a large portfolio. Moreover, over recent years, he argues that bitcoin‘s volatility has been comparable to major tech equities such as Nvidia, Meta and Tesla.

The governor warns that the cryptocurrency’s value “could plausibly end up at two extremes – very high or zero”. The CNB said it made its digital asset “purchases” on October 30, when the spot price of bitcoin stood at $110,670. That said, Michl insists the exercise is about learning and scaling carefully, not speculative bets.

Asked whether, after a successful test, bitcoin might enter the reserves portfolio, Michl says he “honestly” does not know. For now, the focus is on understanding the mechanics. He reiterates that bitcoin’s low correlation with other assets makes it attractive for “a large portfolio”, though he underlines that it lacks gold’s long monetary history.

What do CNB models say about bitcoin in reserves?

Internal backtests suggest that if the CNB had held 5% of reserves in bitcoin over the past 10 years, expected annual returns would have risen by about 3.5 percentage points. However, overall portfolio volatility would have roughly doubled. Michl adds that over the last five years, bitcoin has delivered a more favourable risk‑return profile than equities in their simulations.

He says that if the board had sought higher expected returns, analysis indicates that adding around 2.5% in a bitcoin ETF would have been more efficient than lifting US equity exposure from 38% to 50%. The estimated increase in expected return would have been similar, but volatility would have been “much smaller” with 2.5% in a bitcoin ETF. Still, he cautions that these are backward‑looking tests and bitcoin’s short history means its characteristics may change.

Michl stresses that he remains a “strong supporter” of the Czech koruna, saying “we can also build financial innovation on it”. He considers it realistic that, in future, citizens will be able to buy a tokenised Czech government bond in koruna “as easily as buying a coffee – one tap for payments, another for savings”. This vision ties the experiment directly to domestic capital market development.

How is the CNB organising its digital innovation push?

Alongside the portfolio, the bank launched a lab innovation hub to test “technologies and trends that may affect the functioning of the financial market and the conduct of monetary policy in the future”. These include blockchain solutions, artificial intelligence tools and payment innovations. Moreover, Michl says the idea is to gain hands‑on experience, build internal capacity and prepare for what future market structures may bring.

Michl says he came up with the “idea of creating a test portfolio” in January to analyse “decentralised bitcoin from the central bank’s perspective”. The CNB board then decided to expand the scope to additional assets such as stablecoins and tokenised deposits. The bank plans to inform the public about its experience on an ongoing basis and to present an overall assessment of the project in about two to three years.

The CNB says it wants “practical experience” with blockchain‑based technologies that could “fundamentally affect the operation of the financial and payment system in the future”. However, it emphasizes that the test environment is tightly controlled. The bank says it will test “the whole chain of processes” for purchasing, holding and managing digital assets, from key management and multi‑level approvals to crisis scenarios, security mechanisms and AML checks.

How will the CNB handle custody, accounting and reporting?

The bank plans to use and settle the various digital assets in trading, record them in its accounts and audit its holdings, while training CNB staff to handle these instruments. It clarifies that digital assets in the test portfolio are separated from international reserves and “do not in any way affect the CNB’s ability to conduct potential foreign exchange interventions or direct monetary policy”. This separation is central to reassuring markets.

Michl first floated adding bitcoin to reserves in early January, telling a television station that the CNB had “considered” the option, when bitcoin traded at $98,355. Later that month, he told the Financial Times he was considering investing as much as 5% of reserves into bitcoin, by which point the price had climbed to $109,995. On February 10, after a dip to $96,932, Central Banking reported he had made the comment without consulting staff, a claim he denied.

Instead of a rapid move into reserves, the CNB decided to analyse “additional asset classes”. The broader crypto market benefited from favourable treatment by US president Donald Trump‘s administration, and bitcoin peaked at $124,310 on October 7. That said, the CNB insists its current initiative is not about chasing peaks, but about building rigorous operational playbooks.

What operational and legal hurdles did CNB experts identify?

Alongside the announcement, the bank published a 50‑page chapter from an internal analysis prepared over nine months. The study focuses on the technical aspects of procuring, holding and trading bitcoin, and the associated challenges. It highlights that bitcoin transactions are irreversible, meaning that loss or abuse of the private key securing a wallet carries a risk “incomparable to any other risks the CNB currently faces”.

The document examines self‑custody via software wallets, USB tokens and hardware security modules. It rules out software wallets and concludes that either a multi‑party signature or a multi‑party computation scheme in a hardware security module would represent “best practice”. In this design, a multi‑party orchestrator oversees the signing process and requires a “threshold number of partial signatures” to form a final signature, without any single instance holding the full private key.

However, such a setup would entail “considerable financial cost”, as the CNB would need multiple specialised hardware devices. Instead, the study finds that a “co‑custody” approach would be “highly secure”, combining an external custodian holding the bitcoin with multi‑party orchestrator technology to co‑sign asset transfers. Moreover, this structure could align better with existing institutional controls.

How will bitcoin be treated on the CNB balance sheet?

The report notes that CNB officials have met with the European Central Bank and the International Monetary Fund to discuss how bitcoin holdings should be reported legally and statistically. All parties agreed that, under IMF guidelines, directly held bitcoin cannot be classified as an official reserve asset or as a foreign currency asset. Instead, it would sit outside international reserves.

According to the study, directly held bitcoin would appear as a balance sheet line called “tangible and intangible assets”. If the value climbed to multiple billions of koruna, the bank would create a “separate sub‑item” for bitcoin. That said, valuation would follow a conservative principle: assets would be booked at acquisition cost or current fair value, whichever is lower. An allowance would be created if fair value falls below cost.

The report adds that profits and losses would only be recorded when realised. Small‑volume bitcoin purchases would show up in costs, while larger volumes would “not appear at all” on the list of assets, as doing so would resemble “selling one type of asset from the reserves and buying another”. This accounting treatment aims to preserve clarity around reserve movements.

What risks does the CNB see in bitcoin and related technologies?

The bank acknowledges several risks, including bitcoin’s high energy consumption, the potential systemic implications if Strategy, a bitcoin “treasury firm” holding 2.9% of the asset in existence, were to fail, extreme price volatility and the cryptocurrency’s role in illicit activities. However, the report concludes that “it is appropriate now to start testing the technology and assessing it in detail”.

Doing so, it argues, will help the CNB better understand the limitations and risks of bitcoin and blockchain technologies. The bank also calls for attention to stablecoins and deposit tokens, which could “eliminate the volatility of cryptocurrencies”. Moreover, these instruments might play a future role in modernising payments without exposing balance sheets to full crypto price swings.

In this context, the experimental portfolio of cnb digital assets becomes a practical laboratory for policy, operations and risk management. The initiative is intended to generate institutional knowledge that can guide future decisions on everything from custody design to potential tokenised government securities.

How have other European central banks reacted to the CNB move?

Central Banking contacted European central banks to gauge reactions. The European Central Bank and the central banks of Croatia, France, the Netherlands, Serbia, Spain, Switzerland and the UK declined to comment on the CNB’s decision. However, the Swiss National Bank stated that cryptocurrencies, including bitcoin, do not “meet the SNB’s currency reserve requirements”.

The Bank of Estonia said it has “not considered taking a similar step” to the CNB. The Netherlands Bank (DNB) noted it has an established process for strategic asset allocation and that any new asset class must pass a thorough review with multiple checks and balances. “So far digital assets have not made it into DNB’s SAA,” a spokesperson said.

The National Bank of Ukraine (NBU) described the CNB initiative as an “interesting experiment”. Nonetheless, it does “not plan to include virtual assets in its international reserves”, arguing that such a move would “reduce the level of usable reserves, worsen external stability indicators, and undermine confidence in the central bank”. As the central bank of a country at war, it sees reserves as a “critical instrument” for macro‑financial stability.

Why are some central banks resisting crypto in reserves?

The NBU warns that adding bitcoin to reserves would “introduce additional vulnerabilities” and conflict with its reserve management framework, which is “guided first and foremost by the principle of asset safety”. It argues that “sharp and unpredictable fluctuations” in virtual asset prices would translate into excessive volatility in the value of FX reserves, complicating efforts to anchor exchange rate expectations and ensure resilience.

Ukraine’s domestic legislation also blocks such investments, since virtual assets are not included in the “strict” law defining the NBU’s reserve composition. Even if the legal framework changed, the bank says virtual assets would still not qualify as reserve assets under international standards. Its technical memorandum of understanding with the IMF lists components of Ukraine’s reserves, and virtual assets are absent.

The National Bank of Serbia says the law governing its activities does “not envisage investing foreign exchange reserves in digital currencies”, and it is not currently considering such moves. However, it remains “vigilant about global developments in digital assets and potential future implications for financial stability”. It will monitor the effects of measures like the CNB experiment while maintaining a focus on safety, liquidity and profitability.

Serbia’s central bank notes that including digital assets in reserves demands strong legal clarity, a defined regulatory framework, stable market conditions and robust risk‑management infrastructure. It points to challenges such as market volatility, cybersecurity risks and valuation issues. In international practice, such investments remain limited, and the bank says it will continue following global standards to support domestic financial stability.

Overall, the CNB’s small‑scale experiment signals a cautious but notable shift in how a European central bank engages with bitcoin and blockchain. While most peers remain wary of direct exposure, Prague is betting that structured experimentation today will leave it better prepared for tomorrow’s digital financial architecture.

Keyword principale: cnb digital assets