TLDR
- Bank of Korea has excluded to add Bitcoin to its currency reserves
- Officials quoted Bitcoin’s high volatility and high transaction costs under market instability
- Bitcoin does not meet IMF criteria for currency reserves (liquidity, market stability, credit rating for investment quality)
- Discussions about national crypto reserves have increased globally after the US set up a strategic bitcoin reserve
- South Korea gradually loosens some cryptoors, considering allowing crypto -etfs
Korea’s bank have officially excluded to add bitcoin to their currency reservesWith reference to concern about Cryptocurrency volatility and liquidity.
The decision comes in the midst of growing global discussions about digital assets in national financial strategies.
On March 16, South Korea’s Central Bank responded to a written investigation from the representative Cha Gyu-Geun from the National Assembly’s planning and finance committee.
Officials stated that they “have neither discussed nor examined” the possibility of integrating Bitcoin into the country’s reserves.
The bank pointed to Bitcoin price inflability as a key factor in its decision. Over the past 30 days, Bitcoin prices have fluctuated between $ 98,000 and $ 76,000 before decommissioning about $ 83,000, which corresponds to a decline of 15% since February 16.
Central banks warned that “transaction costs to pay bitcoins can rise drastically” if the Cryptocurrency market experiences instability. This concern for liquidity during decline in the market seems to be an important factor in their cautious attitude.
Officials also noted that Bitcoin fails to meet the international foreign exchange fund’s requirements for foreign exchange reserves. These criteria encourage reserving assets to maintain liquidity, market stability and have a credit rating for investment class or higher.
The Bank of Korea emphasized that currency reserves must be immediately useful if necessary. Bitcoin’s volatility and uncertain liquidity under market stress make it inappropriate for this purpose in their assessment.
Professor Yang Jun-Seok from the Catholic University of Korea supported this opinion. He said,
“It is advisable for foreign currency to be kept in proportion to the currencies in countries that we trade with.”
The central bank’s position is in line with other major monetary authorities all over the world. They mentioned that institutions such as the European Central Bank, the Swiss National Bank and Japanese financial authorities share a similar skeptical attitude to Bitcoin as a reserve supply.
Despite increasing calls from certain blocks, the rejection comes to consider bitcoin potential role in national financial systems. At a March 6 Politics seminar, some members of the Korean Democratic Party urged the Central Bank to explore to add Bitcoin to the country’s reserves.
Global interest in cryptores
The global interest in the National Crypto Reserve has grown after the US government’s decision to establish a strategic Bitcoin reserve. This initiative, created through an executive order by President Donald Trump earlier this month, aims to build a digital asset storage.
Some countries have shown openness to the concept. Brazil and the Czech Republic have expressed interest in exploring Bitcoin as a potential reserve supply.
Professor Kang Tae-so from Kaist Graduate School of Finance commented on this development. He noted that the United States is “likely to exploit Stablecoins rather than BTC to maintain dollar hegemony” and questioned “whether the IMF will recognize Stablecoins as currency reserves in the future.”
While he rejects Bitcoin for his reserves, South Korea has gradually linked by some of its crypto regulations. The country’s financial service commission has worked to lift the restrictions on institutional crypto trade.
Supervisory authorities also prepare a second legal framework with a focus on StableCoin surveillance. This suggests a more nuanced strategy for digital assets in addition to the reserve issue.
Korean decision makers are considering allowing to allow crypto-trained funds (ETF). According to the Chairman of Korea Exchange, this feature can provide new opportunities for the country’s financial sector.
The Financial Services Commission has taken a similar position at Bitcoin Reserve as the Central Bank. In November, FSC chairman Kim Byung-Hwan acknowledged a call for a national Bitcoin reserve but dismissed the idea as early.
