Bank of Korea Takes a Cautious Approach to Bitcoin Reserves

Key Points

The Bank of Korea (BOK) has reiterated its cautious stance on incorporating Bitcoin (BTC) into its foreign exchange reserves.
Despite growing support from lawmakers and crypto advocates, the central bank has not reviewed or discussed Bitcoin’s inclusion.
Concerns over volatility and liquidity remain the primary reasons for BOK’s reluctance.

Bitcoin’s Volatility Raises Concerns for BOK

In a March 16 response to Representative Cha Gyu-geun of the National Assembly’s Planning and Finance Committee, BOK highlighted Bitcoin’s extreme price fluctuations as a risk factor.
The central bank warned that market instability could lead to high transaction costs when liquidating Bitcoin, making it unsuitable as a reserve asset.
Over the past 30 days, Bitcoin prices have fluctuated between $98,000 and $76,000, before stabilizing at around $83,000—a 15% drop since February 16 (CoinGecko data).
This volatility supports BOK’s decision to maintain a cautious approach.

Global Crypto Reserve Discussions Gain Momentum

Discussions on Bitcoin’s role in national reserves are intensifying worldwide.
Earlier this month, former U.S. President Donald Trump signed an executive order to establish a strategic Bitcoin reserve and digital asset stockpile.
This move has prompted other nations to reconsider their stance on holding cryptocurrencies in their reserves.
On March 6, a seminar attended by crypto lobbyists and members of Korea’s Democratic Party pushed for integrating Bitcoin into South Korea’s reserves.
Advocates argue that embracing digital assets could boost financial resilience and establish South Korea as a leader in blockchain innovation.

BOK’s Reserve Requirements and Bitcoin’s Limitations

Bank of Korea Takes a Cautious Approach to Bitcoin Reserves

The BOK emphasized that foreign exchange reserves must adhere to strict liquidity and creditworthiness standards.
Key requirements for reserves include:
- Immediate accessibility for use in financial crises.
- Investment-grade credit rating or higher.
Bitcoin does not meet these criteria, limiting its viability as a reserve asset.
Professor Yang Jun-seok of the Catholic University of Korea supported this perspective, stating that reserves should reflect the currencies of major trade partners.
Professor Kang Tae-soo from KAIST’s Graduate School of Finance suggested that the U.S. is more likely to leverage stablecoins than Bitcoin to maintain dollar hegemony.
He also emphasized the importance of the International Monetary Fund (IMF) potentially recognizing stablecoins as foreign exchange reserves in the future.

South Korea Considers Crypto-Related Policy Revisions

While the BOK remains cautious, South Korea is actively reviewing its crypto policies.
Earlier this month, the country’s financial regulator analyzed Japan’s Financial Services Agency’s stance on crypto assets.
This evaluation could impact South Korea’s approach to:
- Regulating cryptocurrency-based financial instruments.
- Potentially lifting the ban on cryptocurrency exchange-traded funds (ETFs).

Conclusion

However, as financial institutions and governments integrate digital assets into strategic reserves, South Korea may reconsider its regulatory stance on cryptocurrencies.

Despite growing global interest in Bitcoin reserves, South Korea’s central bank remains hesitant due to volatility, liquidity concerns, and the lack of investment-grade security.