BOK chief sees no intrinsic value in cryptocurrencies

Bank of Korea (BOK) Governor Lee Ju-yeol said the recent surge in cryptocurrency prices appears abnormal because they have no intrinsic value, adding downward pressure to their prices.

"It's hard to understand why bitcoin prices are so high," Lee told a Q&A session of the Parliament’s planning and finance committee on Feb. 23, when asked about his views on cryptocurrencies.

After his remarks, the bitcoin price slid by around 10%. On Wednesday afternoon, the cryptocurrency price was quoted at $50,350, off its all-time high of $58,012 touched on Monday.

“Cryptocurrencies have surged as a means to hedge against excessive inflation. (But) based on various judging criteria, current cryptocurrency prices seem like an abnormal surge. They have no intrinsic value and thus will undergo wide price swings,” Lee said. 

His comments echoed those by US Treasury Secretary Janet Yellen who said on Monday that bitcoin was a highly speculative asset and an extremely inefficient way to conduct monetary transactions, sending its price tumbling.

Over the weekend, Elon Musk, founder of Tesla Inc., tweeted that the bitcoin price seemed high, just a few weeks after the electric vehicle company announced the purchase of $1.5 billion worth of bitcoin and said it would start accepting the cryptocurrency as a payment method.

MULLING TREASURY BUYBACKS

Separately, Lee said the central bank is considering buying back treasury bonds from the secondary market in response to rising bond yields.

The yield on 10-year government bonds climbed to 1.91%, their highest level in almost two years, after the ruling Democratic Party said earlier this month that it would draw up a fourth round of the pandemic relief fund for a sufficient amount. Another round of emergency relief funds will require a new supplementary budget and subsequently, lead to new government bond issues.

“Given the expected sharp rise in treasury issues this year, we will faithfully fulfill the BOK’s role to stabilize (financial) markets,” the governor told lawmakers.

But he ruled out buying government debt directly from the primary market, which he said would undermine its credibility as an independent central bank.

Regarding the introduction of a central bank digital currency (CBDC), the Bank of Korea is in the final stages of designing and reviewing its technology and it will test its CBDC in a virtual environment this year.

Unlike bitcoin-like cryptocurrencies, which are not backed by central banks, central banks may issue electronic coins or account backed by the credit of the government, instead of printing money. 

Lee reiterated his opposition to the Financial Services Commission’s move to revise the law so that the financial regulator would be allowed to collect and oversee fintech transactions, or e-commerce transactions. BOK exclusively oversees payment and settlement systems through Korea Financial Telecommunications & Clearings Institute under its direct control.

By Ik-Hwan Kimlovepen@hankyung.com

Yeonhee Kim edited this article.