Korea’s yuan deposits challenge almighty dollar
A day after the first clearinghouse for the yuan was opened in Korea, a report by the Bank of Korea showed that companies are stacking up yuan deposits and individual Koreans are joining in.
According to the central bank yesterday, as yuan deposits in Korea are growing at a fast rate, U.S. dollar deposits - although still the largest among foreign currency deposits in the country - have been shrinking.
Yuan deposits are now the second-largest foreign currency deposits in the country.
At the end of last month, foreign currency deposits amounted to $66.4 billion, which is $2.7 billion more than in the previous month. Of the total, Chinese currency deposits amounted to $21.7 billion, up from $20.3 billion the previous month. As a result, Chinese currency deposits now account for 32.7 percent of the total.
Although the increase from the previous month was small, when compared to earlier this year, the deposits have more than doubled. In January, Chinese yuan deposits only accounted for $7.5 billion or 15 percent of the total.
The growth is more marked when compared to 2013. In January 2013, yuan deposits were smaller than yen or euro deposits, accounting for $170 million or 0.5 percent of the total foreign deposits. Euro deposits were $3.4 billion and yen with $1.9 billion in the same period.
However, things started to change since late last year.
During the same time, U.S. dominance of Korea’s foreign currency deposits has been declining. Up until last year, U.S. dollars held the strongest position with a ratio of over 80 percent. That fell to 70 percent last November and continued to fall. Last month dollars accounted for $38.4 billion, up from $37.2 billion in September but only 57.9 percent of the total.
The biggest reason is a new appetite for the Chinese currency by average clients, especially because of attractive interest rates offered by the banks. Previously, most subscribers to yuan deposits were institutional and corporate investors.
Interest in the yuan has been growing as Korea and China step up cooperation on using the currency in bilateral trade. The Chinese currency is the seventh most used foreign currency for global payments as of August, according to the Society for Worldwide International Financial Telecommunications.
This phenomenon is expected to gain momentum as local financial companies and brokerage firms are developing yuan-related deposit products with interest rates of 3 percent.
Woori Bank on Thursday offered a global yuan deposit package with a 3 percent annual interest rate. Korea Exchange Bank is also planning the release of a similar product next week.
BY Lee Ho-jeong [firstname.lastname@example.org]
with the Korea JoongAng Daily
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