Bank of Korea takes cautious stance on Bitcoin reserves, citing liquidity concerns

The Bank of Korea (BoK) has reaffirmed its cautious stance on including Bitcoin in its foreign exchange reserves, citing high volatility and liquidity concerns.

In a March 16 response to a parliamentary inquiry, officials stated they had neither discussed nor reviewed the possibility of adding Bitcoin to national reserves.

The central bank underscored the need for prudence, arguing that cryptocurrency market instability could lead to significant transaction costs when converting Bitcoin to cash.

Bitcoin's price fluctuations have been particularly pronounced, with prices oscillating between $98,000 and $76,000 over the past month before stabilising at around $83,000—a 15% drop since February 16, according to CoinGecko.

These price swings reinforce the Bank of Korea’s hesitancy, as the institution prioritises liquidity and stability in its foreign exchange reserves.

Global policy shifts add pressure on South Korea

While South Korea maintains its conservative approach, international trends suggest increasing acceptance of Bitcoin as a reserve asset.

US President Donald Trump’s recent executive order establishing a strategic Bitcoin reserve has accelerated global discussions on the role of crypto in national financial strategies.

Countries including El Salvador and the Central African Republic have already integrated Bitcoin into their financial frameworks, while other governments explore similar strategies.

On March 6, during a seminar, South Korean crypto industry representatives and members of the Democratic Party called for Bitcoin’s inclusion in national reserves.

Some also advocated for the creation of a stablecoin backed by the South Korean won to enhance the country’s competitiveness in digital finance.

Despite these proposals, the Bank of Korea stressed that reserves must meet strict criteria, including high liquidity and a credit rating of investment grade or higher.

In its assessment, Bitcoin does not satisfy these conditions.

Experts weigh in on Bitcoin’s role in reserves

Financial experts in South Korea remain divided on whether Bitcoin should be included in national reserves.

Professor Yang Jun-seok from the Catholic University of Korea pointed out that foreign exchange reserves should be proportionate to the currencies of key trading partners, a condition Bitcoin does not fulfil.

Meanwhile, Professor Kang Tae-soo from the KAIST Graduate School of Finance suggested that the US may leverage stablecoins instead of Bitcoin to maintain the dominance of the US dollar.

He added that the International Monetary Fund’s (IMF) stance on recognising stablecoins as reserve assets in the future could significantly impact global financial strategies.

South Korea re-evaluates crypto regulation amid Japan’s legislative shift

The Bank of Korea’s cautious position comes as the country’s financial regulator examines Japan’s evolving crypto regulations.

Earlier this month, South Korea’s Financial Services Commission (FSC) reviewed Japan’s latest legislative trends on digital assets, particularly the potential lifting of a ban on cryptocurrency exchange-traded funds (ETFs).

This review signals that South Korea may reconsider its restrictive policies on crypto-based financial instruments.

While the central bank has reiterated its stance on Bitcoin reserves, growing global adoption and shifting financial policies in major economies may eventually influence South Korea’s approach.