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South Korea’s central bank remains cautious about including Bitcoin in its foreign exchange reserves, despite rising calls from various stakeholders.
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The Bank of Korea’s reluctance highlights concerns over Bitcoin’s volatility and its implications for national financial strategies.
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As noted by the Bank of Korea, “Bitcoin’s price volatility is very high,” which raises concerns regarding liquidity during market instability.
South Korea’s central bank has not reviewed Bitcoin as an FX reserve, emphasizing volatility and liquidity requirements amid global crypto discussions.
The Bank of Korea’s Stance on Bitcoin Reserves
The Bank of Korea (BOK) has publicly reiterated its cautious stance on cryptocurrency adoption, particularly regarding the possible inclusion of Bitcoin as part of the country’s foreign exchange reserves. In a response to inquiries from the National Assembly, the BOK stated that it has not engaged in discussions about Bitcoin’s potential role, emphasizing the need for a cautious approach due to the cryptocurrency’s market volatility.
Global Developments and the Impact on South Korean Policy
This decision comes against a backdrop of escalating global interest in how nations may incorporate cryptocurrency into their financial frameworks. Notably, U.S. President Donald Trump’s recent executive order to establish a strategic Bitcoin reserve has spurred discussions in various nations, including South Korea. Advocates within South Korea, particularly members of the ruling Democratic Party, are pushing for a more favorable regulatory environment surrounding cryptocurrencies, including a wanted-backed stablecoin.
Market Volatility and Its Implications
The BOK’s hesitance is significantly influenced by Bitcoin’s inherent volatility. Over the past month, the price of Bitcoin has fluctuated dramatically, with a range between $98,000 and $76,000, before stabilizing around $83,000. This drastic price movement raises alarms about potential liquidity issues during periods of market distress, as affirmed by BOK officials.
Experts Weigh In on National Currency Strategy
Economists within South Korea have noted that maintaining foreign exchange reserves should align with the currencies of key trading partners. Professor Yang Jun-seok from the Catholic University of Korea pointed out that a more conventional approach, wherein reserves mirror the currencies of countries that South Korea engages with, remains essential. Meanwhile, Professor Kang Tae-soo from KAIST Graduate School of Finance raised questions about the future role of stablecoins in the international financial ecosystem and their potential recognition by the IMF as officially acceptable reserve assets.
Regulatory Considerations and Future Outlook
In connection with these discussions, South Korean regulators are closely monitoring global legislative developments, such as those from Japan’s Financial Services Agency, as they contemplate lifting a ban on crypto exchange-traded funds (ETFs). This potential policy shift could indicate a more favorable environment for cryptocurrency in South Korea, reflecting a broader trend of regulatory adaptation to accommodate emerging digital assets.
Conclusion
In summary, while calls for the incorporation of Bitcoin into South Korea’s foreign reserve strategy are growing, the Bank of Korea remains firm in its cautious stance, prioritizing liquidity and stability. As global discussions around cryptocurrency policy evolve, South Korean officials are likely to navigate carefully to maintain financial security while responding to increasing domestic and international pressure for innovation within the sector.
