Bank of Korea Rules Out Bitcoin for Reserves Citing Volatility
1min read The Bank of Korea has officially stated that it will not include Bitcoin in its foreign exchange reserves, citing the cryptocurrency's price volatility as a significant risk. This clarification came in response to an inquiry from Representative Cha Gyu-geun of the National Assembly’s Planning and Finance Committee on March 16. The central bank emphasized that Bitcoin's price fluctuations make it an unreliable asset for reserves, marking the first time the bank has explicitly stated its position on the matter.
The central bank's stance is part of a broader international discussion on the role of cryptocurrencies in national reserves, sparked by recent developments such as the executive order by the U.S. President to establish a strategic "crypto reserve" that includes Bitcoin and Ethereum. The Bank of Korea's cautious approach reflects its concerns about the stability and reliability of Bitcoin as a reserve asset.
A spokesperson for the central bank highlighted the potential for increased transaction costs if the virtual asset market becomes unstable, making it difficult to convert Bitcoin into cash. Additionally, the bank noted that Bitcoin does not meet the International Monetary Fund's (IMF) criteria for foreign exchange reserves, which require assets to be liquid, marketable, and in convertible currencies with investment-grade credit ratings.
This decision comes amidst ongoing debates within the region. Just last week, a seminar hosted by the Democratic Party of Korea discussed the possibility of including Bitcoin in the country’s foreign exchange reserves, just a day before the U.S. President signed his executive order. Meanwhile, Japan, South Korea’s closest neighbor, has also expressed hesitancy regarding the inclusion of Bitcoin in foreign reserves. Last December, Japan's Prime Minister Shigeru Ishiba voiced concerns about the lack of information on the U.S. and other countries' plans for Bitcoin reserves, following a proposal by Satoshi Hamada, a member of Japan’s House of Councilors, suggesting Japan explore converting a portion of its foreign reserves into Bitcoin.
The Bank of Korea's decision underscores the challenges and uncertainties surrounding the integration of cryptocurrencies into national financial systems. While some countries and regions are exploring the potential benefits of digital assets, others remain cautious due to the inherent risks and volatility associated with cryptocurrencies. The central bank's stance serves as a reminder of the need for thorough evaluation and careful consideration before adopting such assets into national reserves.
