Dollar-based savings hit record

U.S. dollar-denominated savings by Koreans reached a record high in July as a stronger won and the prospects of dollar appreciation made dollar-based deposits more attractive.

The Bank of Korea said Wednesday that dollar holdings by local residents reached $55.7 billion in July, showing an unprecedented jump of $5.74 billion from the previous month.

The figure includes foreign currency deposits held by Koreans, expatriates and domestic and foreign corporations that have been in the country at least six months.

The BOK cited exporters saving dollar earnings as the driving force of the record increase.

The moves are largely based on an assumption that the strong won that hit a 14-month high against the dollar earlier this month allows for cheaper dollar purchases before the dollar appreciates against the won again.

Market analysts project the U.S. currency will strengthen soon.

“The won-dollar foreign exchange rate has been low with reduced expectations for U.S. interest rate raise and the S&P’s decision to elevate Korea’s credit rating,” said Kim Doo-un, an analyst at Hana Financial Investment.

“But the exchange rate will rise as the U.S. Fed is recently sending signals of a potential rate hike with the U.S. presidential election around the corner,” Kim said.

As William Dudley, president of the New York Federal Reserve, raised the possibility of an interest rate rise, the won closed at 1,108.30 won against the U.S. dollar on Wednesday, down 16.1 won from the previous session.

Other foreign currency deposits also rose. Deposits held in Chinese yuan rose $100 million to $1.99 billion, while euro deposits gained $540 million to $3.27 billion.

“The euro savings rose the most since December in 2012 as large companies saved payment for trade business and expanded euro-denominated asset investment,” said Ko Seok-kwan, a BOK director.

The July increase in euros recuperated losses after euro deposits fell significantly from $3.63 billion to $2.73 billion in June. The month-on-month drop of $900 million was the biggest since October 2000, said the BOK.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]