Bank of Korea Rejects Bitcoin for Reserves Citing Volatility

The Bank of Korea (BOK) has firmly rejected the inclusion of Bitcoin in its foreign exchange reserves, emphasizing the cryptocurrency's extreme price volatility and lack of liquidity as primary concerns. This decision comes amidst growing global discussions about the role of Bitcoin in national reserves, particularly following the United States' establishment of an official cryptocurrency reserve composed of confiscated Bitcoin.

The BOK's stance is grounded in the criteria set by the International Monetary Fund (IMF) for foreign exchange reserves, which include liquidity, market value, and credit rating—all of which Bitcoin currently lacks. The central bank argues that during market instability, the costs associated with converting Bitcoin into cash could escalate significantly, making it an unreliable asset for reserves. Additionally, cryptocurrencies do not meet the IMF's standards for foreign exchange reserves, further justifying the BOK's decision to avoid Bitcoin as a reserve asset.

This position was reiterated in response to an inquiry from a member of the National Assembly Planning and Finance Committee. The BOK clarified that it has neither discussed nor reviewed the possibility of including Bitcoin in its foreign exchange reserves. This cautious approach is driven by the need to ensure the stability and reliability of the country's financial reserves, which are vital for economic stability and growth.

The BOK’s decision aligns with the IMF’s guidelines on foreign exchange reserves, which stipulate that a reserve asset must possess specific qualities, including liquidity, marketability, and an investment grade or higher credit rating. The BOK argues that Bitcoin fails to meet these standards due to its lack of liquidity during times of volatility and its high-risk nature in uncertain markets. Consequently, the BOK deems Bitcoin unsuitable for inclusion in South Korea’s foreign exchange reserves.

While some countries have shown a more favorable outlook on Bitcoin as part of their reserves, many central banks remain cautious. Concerns similar to those of South Korea have been expressed by other central banks, all of which cite the volatility and risk associated with Bitcoin. In contrast, the U.S. has implemented an executive order to initiate a Strategic Bitcoin Reserve, allowing the Federal Reserve to hold Bitcoin as a strategic reserve from criminal and civil seizure operations.

This decision by the BOK reflects a broader trend among central banks worldwide, which are increasingly wary of the risks associated with cryptocurrencies. While some countries have explored the idea of incorporating digital assets into their reserves, the high volatility and lack of regulatory clarity have deterred many from taking this step. The BOK’s decision underscores its priority on stability and compliance with international standards over the potential benefits of diversifying its reserves with Bitcoin.