The Bank of Korea's Decision on Bitcoin

In a significant announcement on March 16, the Bank of Korea revealed its decision to exclude Bitcoin from its foreign exchange reserves. This move comes at a time when the global financial community is actively discussing the integration of digital currencies into national financial strategies, a conversation spurred by U.S. President Donald Trump's recent executive order on the strategic stockpiling of Bitcoin.

Concerns Over Volatility and Liquidity

The Bank of Korea's decision was communicated in response to an inquiry from Rep. Cha Gyu-geun of the National Assembly's Planning and Finance Committee. The central bank expressed concerns over Bitcoin's high price volatility and its failure to meet the criteria for foreign exchange reserves. "Bitcoin's price volatility is very high," the bank stated, emphasizing the potential for increased transaction costs during liquidation if virtual assets become unstable.

Global Skepticism Towards Bitcoin in Reserves

This cautious approach by the Bank of Korea is mirrored by other major central banks around the world, including the European Central Bank and the Swiss National Bank, which have also expressed skepticism about incorporating Bitcoin into their reserves. Prof. Yang Jun-seok of Catholic University of Korea supported this stance, stating that foreign exchange should be held in proportion to the currencies of trading partner countries, and that the advantage of holding virtual assets is diminished unless major countries issue bonds in Bitcoin.

The Potential Role of Stablecoins

Amidst these discussions, there is growing interest in stablecoins as a potential bridge between traditional finance and digital currencies. Stablecoins, designed to maintain a stable value, are seen as more acceptable reserve assets due to their stability. President Trump's request for Congress to pass legislation related to stablecoins underscores the strategic interest in leveraging these assets to maintain dollar hegemony.

Prof. Kang Tae-soo from KAIST Graduate School of Finance highlighted the importance of whether the IMF will recognize stablecoins as foreign exchange reserves in the future, pointing to the broader geopolitical and economic strategies related to currency dominance and the evolving role of digital currencies in global finance.