Bank of Korea dismisses Bitcoin as Foreign Exchange Reserve, citing IMF criteria

The Bank of Korea Rejects Bitcoin as a Foreign Exchange Reserve

The ongoing global debate over Bitcoin’s role in national foreign reserves has gained fresh momentum, particularly in light of recent policy discussions and executive decisions in major economies. South Korea’s central bank, the Bank of Korea (BOK), has now taken a firm stance, declaring that Bitcoin does not qualify as a viable foreign exchange reserve asset. This decision, the first definitive statement from the bank on this issue, is rooted in concerns over the cryptocurrency’s volatility and its failure to meet the International Monetary Fund’s (IMF) established criteria.

The statement was issued in response to an inquiry from Representative Cha Gyu-geun of the National Assembly’s Planning and Finance Committee on March 16. In its response, the BOK underscored the risks associated with Bitcoin’s price fluctuations, which can cause significant market instability and undermine its reliability as a reserve asset. The announcement arrives at a time when countries, including the United States, are actively exploring the integration of cryptocurrencies into their financial systems. Notably, U.S. President Donald Trump recently signed an executive order to establish a strategic “crypto reserve,” placing Bitcoin (BTC) and Ethereum (ETH) at its core.

As of now, Bitcoin is trading at approximately $83,450—a considerable drop of 23% from its peak of $109,000 in January, according to CoinGecko. This sharp price movement illustrates one of the central bank’s primary concerns: Bitcoin’s lack of stability. A spokesperson for the BOK elaborated on this issue, stating, “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.” The statement highlights the potential liquidity risk associated with holding Bitcoin as a reserve asset.

Bitcoin vs. IMF Criteria for Foreign Exchange Reserves

The Bank of Korea’s reasoning aligns closely with the International Monetary Fund’s (IMF) established guidelines for reserve assets. The IMF requires foreign exchange reserves to possess specific characteristics: liquidity, marketability, and convertibility in investment-grade currencies. According to the central bank’s assessment, Bitcoin fails to fulfill these critical requirements. Unlike traditional reserve currencies such as the U.S. dollar, Bitcoin’s extreme price volatility and lack of a universally accepted credit rating make it an unsuitable asset for reserves.

Despite Bitcoin’s growing acceptance as a digital asset, most central banks remain wary of integrating it into their official reserves. The IMF’s framework primarily favors government-backed fiat currencies and certain highly liquid assets, making cryptocurrencies, including Bitcoin, a challenging fit within this structure.

Regional Perspectives on Bitcoin as a Reserve Asset

While South Korea has explicitly ruled out the inclusion of Bitcoin in its foreign exchange reserves, discussions on this issue continue both within the country and across its neighboring nations. Just last week, a seminar hosted by the Democratic Party of Korea explored the possibility of adding Bitcoin to the country’s reserve holdings. Interestingly, this event took place just a day before President Trump’s executive order on a crypto reserve, signaling a broader geopolitical interest in the subject.

In Japan, similar debates have unfolded, though with comparable skepticism from government leaders. In December, Japanese Prime Minister Shigeru Ishiba expressed concerns over the lack of transparency regarding how other nations, particularly the United States, plan to incorporate Bitcoin into reserves. His comments followed a proposal from Satoshi Hamada, a member of Japan’s House of Councilors, suggesting that Japan consider converting a portion of its foreign reserves into Bitcoin.

The caution exhibited by both South Korea and Japan underscores a prevailing uncertainty among traditional financial institutions regarding the long-term stability and reliability of digital assets. While Bitcoin continues to gain recognition as an investment asset, its role as a foreign reserve component remains under considerable scrutiny.

Conclusion

As digital assets become an increasingly significant part of the global financial ecosystem, discussions surrounding their potential use in national reserves will likely persist. However, the stance taken by the Bank of Korea reflects the broader hesitancy among central banks to adopt Bitcoin as a reserve holding. The cryptocurrency’s volatile nature, lack of an investment-grade credit rating, and divergence from IMF criteria make it a challenging prospect for inclusion in traditional foreign exchange reserves.

With geopolitical factors also at play—such as the U.S.’s moves toward a crypto reserve—it remains to be seen whether governments will eventually find ways to integrate Bitcoin into their official financial frameworks. For now, though, the Bank of Korea’s decision reinforces the prevailing view among central banks: Bitcoin, despite its growing influence, does not yet meet the standards necessary for inclusion in national reserves.