Story Highlights
- Officials rejected Bitcoin as a foreign reserve due to concerns about its volatility and liquidity.
- The political push for crypto reserves continues, but the Bank of Korea remains steadfast.
- The global split increases as the United States embraces Bitcoin while others remain skeptical.
The Bank of Korea (BOK) has officially excluded Bitcoin (BTC) as a foreign exchange reserve asset due to the high volatility and liquidity issues of the cryptocurrency. As discussions on digital asset reserves grow globally, the United States and other countries are considering Bitcoin reserves, prompting the move.
Following a question from lawmaker Cha Gyu-geum, the BOK confirmed that it had neither discussed nor deliberated on Bitcoin as part of its reserves. The central bank reiterated that price volatility makes Bitcoin an unreliable instrument, and fees may skyrocket when markets are declining. The BOK also invoked International Monetary Fund (IMF) guidelines that mandate reserve assets to be highly liquid, stable, and having strong credit ratings requirements Bitcoin fails to fulfill.
South Korea Keeps Hands Off Bitcoin Reserves
While political intrigue surrounding cryptocurrency reserves is increasing, the BOK remains holdout. Some South Korean politicians, especially of the Democratic Party, have advocated for a Bitcoin reserve at a national level. Crypto business people have also proposed stablecoin-backed reserves as a new financial approach. Still, the central bank again emphasized that reserves need to be available instantly for financial stability.
Catholic University of Korea Professor Yang Jun-seok echoed the BOK’s position. He stated that the asset’s value as a reserve is limited if large economies do not issue Bitcoin-denominated bonds.
Internationally, South Korea’s conservative approach is in line with other financial regulators. The European Central Bank, the Swiss National Bank, and the Japanese government have also been skeptical about embracing Bitcoin as a reserve. On the contrary, the United States, during Donald Trump’s reign, made movements towards national reserves of Bitcoin, generating curiosity on its potential for international finance. Brazil and the Czech Republic are also contemplating their reserves in Bitcoins, underlining a deepening rift between the economic policies of countries.
KAIST Graduate School of Finance Professor Kang Tae-soo opines that stablecoins could be a more practical substitute. He opines that the United States would more likely employ stablecoins than Bitcoin to continue its dollar supremacy. The IMF’s attitude toward stablecoins as reserve assets in the future could have far-reaching implications for global financial strategies.
In contrast to the global trend, South Korea is adopting a wait-and-see, cautious attitude. While Bitcoin’s price has moved from $80,000 to $76,000 in a span of a month, the BOK is still not convinced of its stability as a reserve asset. At the time of writing, BTC has risen 0.16% in the last 24 hours and is now at $83,372.
