South Korean central bank calls for a "cautious approach" to including bitcoin in foreign exchange reserves

The South Korean central bank has called for a "cautious approach" to the idea of including bitcoin as foreign exchange reserves given its price volatility.

The Bank of Korea (BOK) has poured cold water on the idea of including bitcoin in its foreign exchange reserves, preferring a "cautious approach" given the cryptocurrency's price volatility, officials said on Sunday.

There have been discussions among lawmakers about the possible inclusion of cryptocurrencies in its strategic reserves after US President Donald Trump announced the establishment of a strategic bitcoin reserve and digital asset stockpile earlier this month.

In an answer to a question by Rep. Cha Gyu-geun of the minor Rebuilding Korea Party, the BOK said it "has neither discussed nor reviewed the possible inclusion of bitcoin in foreign exchange reserves" and "a cautious approach is needed" to the matter.

The BOK cited high volatility in bitcoin prices as a major reason, reports Yonhap news agency.

"In the case of cryptocurrency market instability, transaction costs to cash out bitcoins could rise drastically," the central bank said.

Cryptocurrencies also do not meet the criteria for foreign exchange reserves set by the International Monetary Fund (IMF), such as liquidity, market value and credit rating, it added.

Meanwhile, earlier this month, the BOK highlighted growing uncertainties surrounding inflationary pressures driven by ongoing geopolitical tensions and trade conflicts between major nations.

BOK Deputy Governor Kim Woong made the remarks during a meeting to assess the country's price trends after government data showed a slight dip in consumer price growth.

According to the latest data, consumer prices in South Korea increased by 2 per cent in February, following a 2.2 per cent rise in January.

While the inflation rate remains stable, Kim noted that a variety of global factors continue to create volatility in the outlook for prices.

"Uncertainties remain high regarding geopolitical situations, trade conflicts among major nations, the foreign exchange rate, and domestic demand," Kim said, addressing the concerns that have left inflation projections uncertain.