Bank of Korea Rejects Bitcoin for Reserves Citing Volatility

The Bank of Korea has firmly ruled out the inclusion of bitcoin in its foreign exchange reserves, primarily due to concerns over its extreme volatility. This decision was articulated in response to inquiries from the National Assembly’s Strategy and Finance Committee, where the central bank highlighted the unpredictable nature of cryptocurrency values, which can lead to significant and unexpected transaction costs when converting bitcoin to cash. This unpredictability complicates financial planning and may result in an inadequate assessment of value during trading periods.

The Bank of Korea’s stance aligns with the guidelines set by the International Monetary Fund, which emphasize the importance of controlling liquidity, market risk, and credit risk in a prudent manner. According to these protocols, any asset incorporated into a foreign exchange reserve should exhibit stability and predictability, qualities that bitcoin lacks. This rationale positions the central bank in line with similar skepticism expressed by other global financial institutions, including those in Japan, Switzerland, and the European Central Bank, all of which have approached digital currency integration with caution.

Despite the Bank of Korea’s hesitation regarding bitcoin, South Korea is experiencing significant shifts in its cryptocurrency regulations. The country’s financial watchdog has announced plans to gradually lift the ban on institutional crypto trading. Additionally, South Korea is poised to establish a comprehensive legal framework specifically targeting stablecoins, which are seen as less volatile alternatives within the crypto ecosystem. This strategic pivot aims to support the growing interest in digital finance while balancing the need for regulatory oversight.

South Korea’s cautious yet evolving regulatory stance is not occurring in isolation. Following an executive order from former U.S. President Donald Trump regarding the establishment of a Strategic Bitcoin Reserve based on seized assets, numerous countries have begun to consider the viability of their own bitcoin reserves. However, the Bank of Korea appears undeterred by these global discussions, indicating a firm commitment to its prudent fiscal policies.

The Bank of Korea’s firm position against bitcoin as a reserve asset underscores the complex dynamics within the cryptocurrency market. The interplay between volatility and regulatory frameworks will play a crucial role in shaping South Korea’s approach to digital currencies in the future. While there is a notable movement towards easing restrictions on crypto trading and fostering an environment for stablecoins, the Bank of Korea’s steadfast approach reflects the cautious optimism pervasive among many central banks today.