TLDR
- Bank of Korea has not discussed or reviewed including Bitcoin in foreign exchange reserves
- Officials cite Bitcoin’s high volatility and potential transaction costs during market instability
- The central bank states Bitcoin doesn’t meet IMF criteria for foreign exchange reserves
- This stance comes amid global discussions following the US establishing a Strategic Bitcoin Reserve
- South Korea has been gradually loosening crypto regulations despite this cautious approach
The Bank of Korea has officially stated it has no plans to incorporate Bitcoin into its foreign exchange reserves. In a March 16 response to a written inquiry from Representative Cha Gyu-geun of the National Assembly’s Planning and Finance Committee, the central bank confirmed it has “neither discussed nor reviewed” the possibility.
Central bank officials emphasized they are taking a “cautious approach” to the idea of including the cryptocurrency in national reserves. They pointed to Bitcoin’s price volatility as a major concern for its potential use as a reserve asset.
High price volatility
The officials noted that “Bitcoin’s price volatility is very high.” They warned that “in the case of cryptocurrency market instability, transaction costs to cash out Bitcoins could rise drastically.”
This price instability has been evident in recent market movements. Over the past 30 days, Bitcoin prices have fluctuated between $98,000 and $76,000 before settling around $83,000, representing a 15% decline since February 16.
The Bank of Korea explained that foreign exchange reserves must meet specific criteria. These include maintaining liquidity and being immediately usable when needed, as well as having a credit rating of investment grade or higher.
According to the central bank, Bitcoin does not satisfy these requirements. This position aligns with International Monetary Fund standards for foreign exchange reserves, which prioritize assets with market stability.
The decision comes amid growing global discussions about cryptocurrency’s role in national financial strategies. These talks were sparked by US President Donald Trump’s executive order earlier this month establishing a Strategic Bitcoin Reserve.
Some countries keen on national crypto reserves
Some countries have shown openness to the idea of national crypto reserves. Brazil and the Czech Republic have expressed interest in exploring similar initiatives for their financial systems.
However, the Bank of Korea noted that many major financial institutions share its skeptical stance. They mentioned that the European Central Bank, the Swiss National Bank, and Japanese financial authorities maintain similar positions on cryptocurrency reserves.
South Korean financial experts have weighed in on the decision. Professor Yang Jun-seok of the Catholic University of Korea stated, “It is appropriate for foreign exchange to be held in proportion to the currencies of countries with which we trade.”
Professor Kang Tae-soo from the KAIST Graduate School of Finance commented on global monetary policy. He suggested the US is more likely to leverage stablecoins rather than Bitcoin to maintain dollar dominance.
Lifting restrictions on crypto trading
Despite this cautious approach to Bitcoin reserves, South Korea has been gradually relaxing its stance on crypto regulations. The country’s financial watchdog has been working to lift restrictions on institutional crypto trading.
Regulators are preparing a second legal framework focused on stablecoin oversight. This indicates a nuanced approach to different types of digital assets.
South Korean policymakers are also considering allowing crypto exchange-traded funds. According to the chairman of the Korea Exchange, this move could bring fresh opportunities to the country’s financial sector.
The discussion about Bitcoin reserves began at a seminar on March 6. During this event, crypto industry lobbyists and some members of Korea’s Democratic Party urged the country to integrate Bitcoin into its national reserves.
The same group also advocated for developing a won-backed stablecoin. These proposals represent ongoing efforts within certain political and industry circles to advance cryptocurrency adoption in South Korea.
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