- The Bank of Korea rejects Bitcoin as a foreign exchange reserve due to high volatility.
- The central bank cites liquidity risks and failure to meet IMF reserve standards.
- Korea’s stance contrasts with global discussions on Bitcoin as a reserve asset.
The Bank of Korea has firmly rejected the possibility of including Bitcoin in South Korea’s foreign exchange reserves, stating it has “never reviewed” such a proposal. The central bank’s position was revealed on March 16th in response to a written inquiry from Democratic Party lawmaker Rep. Cha Gyu-geun. This marks the first official stance from the Bank of Korea on Bitcoin stockpiling.
“We believe that we need to approach the inclusion of Bitcoin in foreign exchange reserves cautiously,” the Bank of Korea stated. This clear position comes amid growing global discussion about cryptocurrency as a potential reserve asset for national treasuries.
The central bank cited several specific concerns, with Bitcoin’s extreme price volatility topping the list. The cryptocurrency’s price has shown roller-coaster movements. This volatility presents a fundamental challenge for a reserve asset, which traditionally prioritizes stability and preservation of value.
The Bank of Korea explained that if the virtual asset market becomes unstable, there is concern that transaction costs will increase quickly in the process of converting Bitcoin into cash. The bank highlighted practical concerns about liquidating the asset during potential market stress.
Beyond volatility issues, the central bank stated that Bitcoin fails to meet the International Monetary Fund’s standards for foreign exchange reserve assets. According to the Bank of Korea, the IMF requires reserve assets to possess specific characteristics. This includes immediate usability when needed, strong liquidity and marketability, denomination in a convertible currency, and typically an investment-grade credit rating or higher.
Related: North Korea Becomes 3rd Largest Government Bitcoin Holder
The statement also referenced the positions of other central banking authorities, noting that the European Central Bank, the Swiss National Bank, and the Japanese government have expressed negative opinions on similar proposals. The Bank of Korea’s position comes in the wake of U.S. President Donald Trump’s March 6th executive order establishing a strategic Bitcoin stockpile.
The central bank’s stance comes amidst South Korea’s FSC’s phased plan to introduce new guidelines on institutional cryptocurrency investment. In the first half of the year, law enforcement agencies, universities, and school corporations will be allowed to sell Bitcoin and Ethereum for cash. By the third quarter, the policy will expand to include professional investors and publicly listed corporations.
