The South Korean government announced that it would not consider Bitcoin as a foreign exchange reserve, citing concerns over volatility, lack of regulation, and limited acceptance as major factors influencing its decision.
In response to a written query from Representative Cha Gyu-geun, a National Assembly’s Strategy and Finance Committee member, the central bank expressed concerns about Bitcoin’s suitability as a foreign exchange reserve.
South Korea Rejects Bitcoin Over Volatility Concerns
The bank stated that it “has neither discussed nor reviewed the possible inclusion of bitcoin in foreign exchange reserves” and that “a cautious approach is needed” to the matter. Specifically, it cited the cryptocurrency’s price volatility, which could result in substantial transaction costs when liquidating Bitcoin holdings.
Furthermore, the Bank of Korea added that Bitcoin fails to meet the International Monetary Fund’s (IMF) standards for foreign exchange reserve management, emphasizing prudent risk management across liquidity, market value, and credit rating.
America Says Yes to Bitcoin Reserves
South Korea’s rejection of Bitcoin as a foreign exchange reserve came a few days after the President of the United States, Donald Trump, signed an executive order to establish a Strategic Bitcoin Reserve in the country.
The Strategic Bitcoin Reserve will be formed from Bitcoins obtained by the federal government through asset seizures in connection with criminal or civil proceedings.
America’s establishment of a Bitcoin Reserve underscores the Trump administration’s dedication to embracing digital assets and fostering innovation in the sector. The move parallels El Salvador’s adoption of Bitcoin as legal tender as the country explores its potential as a foreign exchange reserve.
The Bank of Korea’s decision would likely have significant implications for the country’s financial policy and its approach to cryptocurrencies. As the global economic landscape continues to evolve, it remains to be seen how other countries will approach the subject of accepting Bitcoin as a foreign exchange reserve.
South Korea’s decision to reject Bitcoin as a foreign exchange reserve is not an isolated one. The United Kingdom’s Treasury Department had previously ruled out the possibility of establishing a strategic Bitcoin reserve, citing concerns over the crypto-asset’s historical volatility.
The decision was made public after Protos, a media outlet, inquired about the UK’s potential interest in introducing a BTC reserve following the US.