Bank of Korea Rejects Bitcoin for Reserves Citing 50% Price Volatility

The Bank of Korea (BOK) has firmly rejected the inclusion of Bitcoin in the country’s foreign exchange reserves, citing concerns over the cryptocurrency's extreme price volatility and lack of compliance with international standards. In a response to a written inquiry from a lawmaker on March 16, the BOK emphasized the need for caution when considering Bitcoin as part of the country’s financial assets. This marks the first official statement from the central bank on the matter, highlighting the significant risks associated with Bitcoin's price fluctuations and liquidity issues.

The BOK pointed out that Bitcoin’s price has seen sharp fluctuations recently, soaring to 160 million won in January before falling to 110 million won. Despite predictions of potential future growth, experts warn that Bitcoin’s value could drop to zero at any time. The central bank explained that such instability could lead to increased transaction costs when converting Bitcoin into cash, particularly during periods of market turmoil. Additionally, the bank noted that Bitcoin does not meet the International Monetary Fund’s (IMF) standards for foreign exchange reserves, which must be liquid, marketable, and expressed in a convertible currency with a high credit rating.

The BOK further stated that, to date, no discussions or reviews have taken place regarding Bitcoin’s inclusion in reserves. They acknowledged that some countries have expressed positive opinions about the idea, but many others, including the European Central Bank, the Swiss National Bank, and the Japanese government, have expressed negative opinions. This global sentiment reflects a broader caution towards the use of cryptocurrencies in official reserves, underscoring the BOK's conservative stance.

The debate over a strategic Bitcoin reserve has been a contentious issue in recent weeks. Some lawmakers and political figures have advocated for the inclusion of Bitcoin in reserves, sensing the need to court younger voters ahead of potential elections. However, the BOK's rejection of this proposal underscores the central bank's commitment to maintaining stable and reliable foreign exchange reserves. The BOK's decision to rule out Bitcoin as a reserve asset is a significant development in the ongoing discussion about the role of cryptocurrencies in the global financial system. While some may continue to advocate for the inclusion of Bitcoin in reserves, the BOK's stance reflects a cautious approach that prioritizes financial stability and compliance with international standards. This decision is likely to influence other central banks and financial institutions as they consider the potential risks and benefits of incorporating cryptocurrencies into their reserve portfolios.