The Bank of Korea (BoK) has said that Bitcoin (BTC) fails to meet both national and IMF standards, making it unsuitable as a foreign reserve asset.
While responding to a March 16 inquiry from Representative Cha Gyu-geun of the National Assembly’s Planning and Finance Committee, the central bank noted the risks of BTC’s price fluctuations, making it an unreliable reserve asset.
Still, this fact hasn’t stopped El Salvador and now the U.S., which have officially adopted BTC into their economies.
Bank of Korea breaks silence on crypto reserves
This is the first time the Bank of Korea has clarified its position on the potential use of the crypto for national reserves, emphasizing its “cautious” approach while dealing with the asset.
The development comes amid ongoing international discussions about the role of crypto in national reserves following U.S. President Donald Trump’s recent executive order to establish a strategic “crypto reserve,” with Bitcoin (BTC) and Ethereum (ETH) at its heart.
According to local reports, South Korean lawmakers have explored adopting cryptocurrencies as strategic reserve assets.
However, Bitcoin’s volatility remains a key concern. According to Coingecko, the leading crypto is currently trading at approximately $83,450, a 23% decline from its peak of $109,000 in January.
“If the virtual asset market becomes unstable, there is a concern that transaction costs will increase rapidly in the process of converting Bitcoin into cash,” a spokesperson for the central bank said, according to reports in local media.
The central bank also noted that Bitcoin does not meet the International Monetary Fund’s (IMF) criteria for foreign exchange reserves.
According to the IMF, the bank explained that reserve assets must be liquid, marketable, and denominated in convertible currencies with investment-grade credit ratings—standards that Bitcoin fails to meet.
Despite these concerns, the BoK acknowledged that it “has neither discussed nor reviewed” the possibility of adding Bitcoin to its foreign exchange reserves.
South Korea and Japan debate adding Bitcoin to foreign reserves
The ruling Democratic Party of Korea recently held a seminar on the possibility of including Bitcoin in the country’s foreign exchange reserves—one day before former U.S. President Donald Trump signed his executive order on cryptocurrency. This is a groundbreaking reversal for South Korea, which has traditionally had a conservative policy stance toward digital assets.
Japan, South Korea’s closest neighbor, has been more cautious. Japanese Prime Minister Shigeru Ishiba expressed trouble over the absence of a definite strategy related to Bitcoin reserves at the global level at the end of 2024.
His comments were related to a proposal by a member of Japan’s House of Councilors, Satoshi Hamada, who proposed that a part of Japan’s foreign reserves be converted into Bitcoin.
South Korea’s fiscal caution clashes with its thriving crypto market
Economic history gives South Korea’s aversion to crypto at the national level deep roots. The country has experienced several boom-bust cycles, and governments have tended to be fiscally conservative.
The biggest was in 1997 when a devastating financial crisis forced the Bank of Korea (BoK) to obtain a $58 billion bailout from the International Monetary Fund (IMF). After paying off that debt in 2001, South Korea has dodged any future IMF interventions and bolsters a hefty $410 billion in foreign reserves.
Interestingly, although it has taken the stability-over-innovation approach and has super-strict crypto regulations, the nation is still home to one of the largest crypto trading blocs in the world.
An estimated 30% of its population are crypto users. There is currently an international race to adopt crypto officially, which may force the nation to rethink its conservative policies.
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