South Korea’s central bank, the Bank of Korea (BOK), has officially declared that it will not include Bitcoin in its foreign exchange reserves, citing concerns over the cryptocurrency’s volatility and its misalignment with international reserve asset standards. This decision underscores the nation’s cautious approach to integrating digital assets into its financial framework and reflects broader debates on the role of cryptocurrencies in traditional economic systems.
In response to inquiries from lawmakers, the BOK clarified that it has neither considered nor reviewed the inclusion of Bitcoin in its foreign exchange reserves. The central bank emphasized that Bitcoin’s notorious price volatility poses significant risks to reserve management. Moreover, the BOK highlighted that Bitcoin does not meet the International Monetary Fund’s (IMF) criteria for reserve assets, which require assets to be liquid, marketable, and investment-grade.
South Korea has been proactive in regulating the cryptocurrency market to ensure financial stability and protect investors. In July 2023, the Act on the Protection of Virtual Asset Users (Act No. 19563) was promulgated and came into force in July 2024. This legislation aims to establish a sound order in the virtual asset market and ensure protection for users. Cryptocurrency exchanges have since strengthened their compliance control systems to align with the new regulatory requirements.
The Act introduced several key measures:
- Real-Name Account System: Cryptocurrency trading is restricted to real-name bank accounts, requiring traders to have accounts with banks that can verify their identities. This measure aims to prevent money laundering and other illicit activities.
- Enhanced AML/KYC Procedures: Crypto businesses must implement expanded Anti-Money Laundering (AML) and Know Your Customer (KYC) procedures using a risk-based approach. This includes customer due diligence and reporting suspicious transactions.
- Travel Rule Compliance: The Financial Services Commission (FSC) has implemented the Financial Action Task Force’s (FATF) Travel Rule, requiring Virtual Asset Service Providers (VASPs) to exchange customers’ personal data with transaction counterparties to enhance transparency.
South Korea’s cautious stance contrasts with the approaches of some other nations. For instance, North Korea has reportedly amassed significant Bitcoin reserves through cyber operations, despite international sanctions and economic restrictions. Data indicates that North Korea holds approximately 13,518 BTC, valued at around $1.13 billion, surpassing the holdings of countries like Bhutan and El Salvador, which have actively incorporated Bitcoin into their financial strategies.
Additionally, South Korea plans to regulate cross-border transactions of virtual assets, including cryptocurrencies, starting from the second half of 2025. Businesses involved in such transactions will need to register with relevant authorities and report their transactions to the BOK on a monthly basis. These measures aim to address the significant volume of foreign exchange-related crimes, with 81.3% involving virtual assets.
The BOK’s decision to exclude Bitcoin from its foreign exchange reserves has several implications:
- Financial Stability: By avoiding assets with high volatility, the BOK aims to maintain the stability of its foreign exchange reserves, ensuring they can effectively support the national economy during financial fluctuations.
- Regulatory Consistency: The decision aligns with South Korea’s stringent regulatory framework for cryptocurrencies, reinforcing the government’s commitment to a cautious and measured approach to digital asset integration.
- Market Perception: The exclusion of Bitcoin from national reserves may influence public perception and adoption of cryptocurrencies within South Korea, potentially slowing the mainstream acceptance of digital assets.
- International Relations: South Korea’s stance may affect its financial relationships with countries that have embraced cryptocurrencies, potentially influencing bilateral trade agreements and financial collaborations.
While the BOK’s current position is clear, the dynamic nature of the global financial landscape means that future considerations could evolve. Factors that may influence a reassessment include:
- Market Maturity: As the cryptocurrency market matures and stabilizes, with reduced volatility and increased liquidity, the BOK may reconsider its stance on digital assets.
- International Adoption: If major economies begin to include cryptocurrencies in their reserves, South Korea might reevaluate its position to remain competitive in the global financial system.
- Technological Advancements: Developments in blockchain technology and enhanced security measures could address some of the current concerns associated with cryptocurrencies, making them more viable as reserve assets.
South Korea’s decision to exclude Bitcoin from its foreign exchange reserves reflects a cautious and measured approach to integrating digital assets into its national financial strategy. By prioritizing financial stability and adhering to international standards, the BOK aims to safeguard the country’s economic interests. As the global financial ecosystem continues to evolve, South Korea’s policies may adapt accordingly, balancing innovation with prudence to navigate the complexities of digital asset integration.