The Bank of Korea (BoK) has ruled out the possibility of including bitcoin in its foreign exchange reserves. Despite rising global talk about bitcoin being part of national financial strategy, South Korea’s central bank remains firm, citing high volatility and liquidity concerns.
Representative Cha Gyu-geun of the National Assembly’s Planning and Finance Committee asked the Bank of Korea if they had ever discussed or reviewed the possibility of adding bitcoin to the reserves. The answer was “neither discussed nor reviewed”.
Officials said “a cautious approach is needed” when it comes to digital assets.
One of the reasons for this caution is the extreme price fluctuation of bitcoin. The central bank pointed out that bitcoin’s price recently went up to $108,000 and down to $76,000 before stabilizing at $84,000. Such volatility makes relying on it impossible as a stable financial asset.
The Bank of Korea warned that “in the case of cryptocurrency market instability, transaction costs to cash out Bitcoins could rise drastically.” This means they believe that during financial crises, converting bitcoin to cash could get expensive and inefficient.
Also, the central bank said its foreign exchange reserves must be liquid and available when needed, something Bitcoin does not guarantee. Reserves also need to have investment-grade credit rating, another factor Bitcoin fails to meet.
The Bank of Korea’s decision is in line with the International Monetary Fund (IMF) which sets strict standards for foreign exchange reserves.
According to IMF, reserve assets must be liquid, marketable and have high credit rating. The BoK said Bitcoin does not meet these criteria so it’s not suitable for South Korea’s reserves.
Many central banks are still cautious but some countries have been more open to Bitcoin.
The Czech Republic and Brazil have considered holding bitcoin in national reserves. The U.S. government even has a Strategic Bitcoin Reserve consisting of confiscated bitcoin acquired through legal actions.
But major institutions like the European Central Bank and the Swiss National Bank have rejected bitcoin as a reserve asset.
The Bank of Korea is declining bitcoin as a reserve but the country is still active in the Bitcoin space. Reports say South Korea is planning to lift a long standing ban on institutional digital asset investments and allows corporate entities to trade them.
This could boost the country’s already booming digital asset market where 30% of the population invest in digital assets.
Meanwhile the government is also exploring the possibility of launching a won-backed stablecoin, a digital asset tied to the country’s currency. Some experts think stablecoins, not bitcoin, will play a bigger role in future financial strategies.
“Whether the IMF will recognize stablecoins as foreign exchange reserves in the future is important,” said Professor Kang Tae-soo from the KAIST Graduate School of Finance.
The debate about bitcoin as a reserve asset is getting more intense after U.S. President Donald Trump’s executive order to create a national bitcoin reserve. Some South Korean lawmakers and leaders are urging the government to follow suit but the BoK is standing firm.
