“Too Volatile” Bank of Korea Rejects Bitcoin as Foreign Reserve Asset

TLDR

Bank of Korea has ruled out adding Bitcoin to its foreign exchange reserves
Officials cited Bitcoin’s high volatility and high transaction costs during market instability
Bitcoin does not meet IMF criteria for foreign exchange reserves (liquidity, market stability, investment-grade credit rating)
Discussions about national crypto reserves have increased globally after the US established a Strategic Bitcoin Reserve
South Korea is gradually loosening some crypto regulations, considering allowing crypto ETFs

The Bank of Korea has officially ruled out adding Bitcoin to its foreign exchange reserves, citing concerns about the cryptocurrency’s volatility and liquidity.

The decision comes amid growing global discussions about the role of digital assets in national financial strategies.

On March 16, South Korea’s central bank responded to a written inquiry from Representative Cha Gyu-geun of the National Assembly’s Planning and Finance Committee.

Officials stated they have “neither discussed nor reviewed” the possibility of incorporating Bitcoin into the country’s reserves.

The bank pointed to Bitcoin’s price instability as a key factor in its decision. 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.

Central bankers warned that “transaction costs to cash out Bitcoins could rise drastically” if the cryptocurrency market experiences instability. This concern about liquidity during market downturns appears to be a major factor in their cautious stance.

Officials also noted that Bitcoin fails to meet the International Monetary Fund’s requirements for foreign exchange reserves. These criteria mandate that reserve assets maintain liquidity, market stability, and hold a credit rating of investment grade or higher.

The Bank of Korea emphasized that foreign exchange reserves must be immediately usable when needed. Bitcoin’s volatility and uncertain liquidity during market stress make it unsuitable for this purpose in their assessment.

Professor Yang Jun-seok of the Catholic University of Korea supported this view. He stated,

“It is appropriate for foreign exchange to be held in proportion to the currencies of countries with which we trade.”

The central bank’s position aligns with other major monetary authorities worldwide. They mentioned that institutions like the European Central Bank, the Swiss National Bank, and Japanese financial authorities share a similarly skeptical stance on Bitcoin as a reserve asset.

The rejection comes despite increasing calls from some quarters to consider Bitcoin’s potential role in national financial systems. At a March 6 policy seminar, some members of the Korean Democratic Party urged the central bank to explore adding Bitcoin to the country’s reserves.

Global Interest in Crypto Reserves

Global interest in national crypto reserves has grown following the US government’s decision to establish a Strategic Bitcoin Reserve. This initiative, created through an executive order by President Donald Trump earlier this month, aims to build a digital asset stockpile.

Some countries have shown openness to the concept. Brazil and the Czech Republic have expressed interest in exploring Bitcoin as a potential reserve asset.

Professor Kang Tae-soo from the KAIST Graduate School of Finance commented on these developments. He noted that the US is “likely to leverage stablecoins rather than BTC to maintain dollar hegemony” and questioned “whether the IMF will recognize stablecoins as foreign exchange reserves in the future.”

While rejecting Bitcoin for its reserves, South Korea has been gradually relaxing some of its crypto regulations. The country’s Financial Services Commission has been working to lift restrictions on institutional crypto trading.

Regulators are also preparing a second legal framework focused on stablecoin oversight. This suggests a more nuanced approach to digital assets beyond the reserve question.

Korean policymakers are considering allowing crypto exchange-traded funds (ETFs). According to the chairman of the Korea Exchange, this move could bring fresh opportunities to the country’s financial sector.

The Financial Services Commission has taken a similar position on Bitcoin reserves as the central bank. In November, FSC Chairman Kim Byung-hwan acknowledged calls for a national Bitcoin reserve but dismissed the idea as premature.