Bitcoin Not Suitable for Reserves, Says South Korea’s Central Bank

• Bank of Korea rejects Bitcoin for foreign exchange reserves due to volatility concerns.
• IMF guidelines highlight Bitcoin’s lack of liquidity and marketability for reserves.
• Countries like the Czech Republic and Brazil consider Bitcoin reserves, while others remain cautious.

South Korea’s central bank is taking a hard pass on Bitcoin. The Bank of Korea (BOK) says it has no intention of including Bitcoin in its foreign exchange reserves, citing volatility and potentially high transaction costs.

The central bank’s stance came in response to an inquiry from Rep. Cha Gyu-geun, a National Assembly Planning and Finance Committee member, regarding the possibility of adding Bitcoin to the country’s foreign exchange assets.

Why Won’t South Korea Hold Bitcoin?

In a statement released on March 16, the Bank of Korea explained that Bitcoin’s price fluctuations pose challenges. Specifically, the bank pointed out that Bitcoin’s value could drop during market instability, leading to an increase in transaction costs when attempting to liquidate the cryptocurrency.

This cautious stance on Bitcoin reserves comes as South Korea moves to loosen its overall regulatory approach to cryptocurrency. The country’s financial regulatory body is moving forward with plans to lift its ban on institutional cryptocurrency trading.

Related: Czech Central Bank Evaluates Bitcoin as a Reserve Asset, No Immediate Plans

International Guidelines on Reserves

The Bank of Korea’s position aligns with the International Monetary Fund’s (IMF) guidelines on foreign exchange reserves. According to the IMF, a reserve asset must meet specific criteria, including liquidity, marketability, and an investment grade or higher credit rating.

The BOK argues that Bitcoin fails to meet these standards due to its lack of liquidity during times of volatility and its high-risk nature in uncertain markets. As such, the BOK deems Bitcoin unsuitable for inclusion in South Korea’s foreign exchange reserves.

Global Perspectives on Bitcoin Reserves

While some countries, like the Czech Republic and Brazil, have shown a more positive outlook on Bitcoin as part of their reserves, many other central banks remain cautious. The European Central Bank (ECB), Switzerland’s central bank, and the Japanese government have all expressed concerns similar to those of South Korea, citing the volatility and risk associated with Bitcoin.

Related: Donald Trump Makes It Official: Strategic Bitcoin Reserve, Altcoin Stockpile Is Law

In contrast to South Korea’s position, the U.S. has so far gone on to even implement an executive order in early March to initiate a Strategic Bitcoin Reserve, which permits the US Federal Reserve to hold Bitcoin as a strategic reserve that it has in possession from criminal and civil seizure operations.