Bank of Korea Snubs Bitcoin Reserves Amid Growing Global Interest

In a response to a written inquiry from Representative Cha Gyu-geun of the National Assembly’s Planning and Finance Committee, BOK officials emphasized the need for a cautious approach regarding Bitcoin. They highlighted Bitcoin's high price volatility as a primary concern, noting that such instability could lead to increased transaction costs when converting Bitcoin into cash, particularly during periods of market turmoil. The bank stated, "We have not discussed or considered Bitcoin's incorporation into our foreign exchange reserves so far."

Furthermore, the BOK pointed out that Bitcoin does not meet the International Monetary Fund's (IMF) standards for foreign exchange reserves, which require assets to be liquid, marketable, and expressed in a convertible currency with a high credit rating. They expressed concerns that, even if Bitcoin were included in foreign exchange reserves, it is highly likely that overseas entities would not recognize it as a reliable external safety net.

The BOK's stance contrasts with recent developments in other countries. Notably, U.S. President Donald Trump signed an executive order to establish a Strategic Bitcoin Reserve. This move has sparked discussions worldwide about the potential role of cryptocurrencies in national reserves.

In Europe, the Czech National Bank (CNB) has shown interest in diversifying its reserves by potentially including Bitcoin. Governor Aleš Michl proposed investing up to 5% of the CNB's €140 billion reserves into Bitcoin, aiming to diversify assets and potentially enhance returns. Michl acknowledged Bitcoin's volatility but highlighted growing investor interest as a factor in considering such a move.

However, this proposal has met with caution from other European financial authorities. European Central Bank (ECB) President Christine Lagarde dismissed the idea of incorporating Bitcoin into European reserves, citing its volatility and associations with anti-money laundering concerns. Lagarde emphasized that reserves should be "liquid, secure, and safe," implying that Bitcoin does not meet these criteria.

The BOK's decision to exclude Bitcoin from its foreign exchange reserves underscores its commitment to maintaining stability and adhering to international standards in its reserve management strategies. By focusing on assets that meet the IMF's criteria, the BOK aims to ensure that its reserves remain reliable and readily usable in times of need.

This cautious approach reflects a broader trend among central banks, many of which remain hesitant to adopt cryptocurrencies as part of their reserves due to concerns over volatility, regulatory challenges, and the lack of intrinsic value. While some nations explore the potential benefits of integrating digital assets into their financial systems, others, like South Korea, prioritize caution and adherence to established financial principles.

The Bank of Korea's official stance against incorporating Bitcoin into its foreign exchange reserves highlights the complexities and divergent views among nations regarding the role of cryptocurrencies in national financial strategies. As the global financial landscape continues to evolve, central banks face the challenge of balancing innovation with stability, carefully considering the implications of integrating volatile digital assets into their reserves.