Bank of Korea Rejects Bitcoin for Reserves Citing 30% Price Volatility

The Bank of Korea has officially dismissed the possibility of including Bitcoin in its foreign exchange reserves, citing significant concerns over the cryptocurrency's volatility and its failure to meet the necessary criteria for reserve assets. The central bank emphasized the need for extreme caution when considering Bitcoin, highlighting its price instability and the potential risks associated with its inclusion in reserves.

The Bank of Korea's stance was clarified in response to an inquiry from a member of the National Assembly Planning and Finance Committee. The central bank noted that Bitcoin's price volatility is a primary concern, with the cryptocurrency's value fluctuating significantly over a short period. At the start of the year, Bitcoin's price reached 160 million won, but it recently declined to 110 million won. This volatility raises uncertainty about Bitcoin's reliability as a reserve currency and increases transaction costs when converting it into cash, which is a critical concern for liquidity.

The Bank of Korea also pointed out that Bitcoin does not meet the International Monetary Fund's criteria for foreign exchange reserves. According to the IMF, reserves must be liquid, denominated in a convertible currency, and have an investment-grade credit rating. Bitcoin lacks these attributes, making it unsuitable for inclusion in Korea’s foreign exchange reserves. The central bank reaffirmed that there has been no internal discussion or review regarding Bitcoin’s inclusion in reserves.

Despite some countries expressing positive views on Bitcoin as a reserve asset, major financial institutions have opposed its adoption. The Bank of Korea's decision aligns with the stance of other major financial institutions, which have also expressed concerns over Bitcoin's volatility and regulatory uncertainties. The central bank's cautious approach underscores the need for a stable and reliable reserve currency, which Bitcoin currently does not provide.

The debate over Bitcoin's role in national reserves has gained momentum globally, with some countries exploring the possibility of including the cryptocurrency in their reserves. However, the Bank of Korea's decision to dismiss Bitcoin as a reserve asset highlights the challenges and risks associated with its inclusion. The central bank's stance is a reminder of the importance of stability and reliability in reserve currencies, which are critical for maintaining economic stability and confidence in the financial system.