Foreign currency deposits hit $65.6 billionGrowing instability in both the global and local market prompted some Koreans to start stockpiling dollars last month, exacerbating problems as the won depreciated further against the dollar.
Rumors that the government is pushing for redenomination - a claim it has repeatedly denied - only made matters worse.
According to the Bank of Korea (BOK) on Monday, last month foreign currency deposits in Korea hit $65.6 billion, $2.41 billion more than in April.
Foreign deposits not only include foreign currency savings made by Koreans and Korean companies, but also foreigners who have lived in Korea for more than six months as well as foreign companies operating here.
This is a sharp turnaround from April, when foreign currencies deposits fell to $63.2 billion, the lowest point since December 2016.
This was largely because companies and individuals had been selling their dollar holdings to profit from the appreciation of the U.S. currency.
Retail investors in particular were more aggressive in expanding foreign currencies holdings.
Companies’ account for 78.8 percent of foreign currency deposits. Last month they added $1.77 billion to a balance of $51.7 billion, a 3.5 percent increase.
Retail investors’ foreign currencies deposit last month grew $640 million to a balance of $13.9 billion. That’s a 4.83 percent increase.
Among the foreign currencies, the U.S. dollar saw the sharpest increase. Last month, $2.19 billion was added to total $55.7 billion. U.S. dollar deposits account for 85 percent of foreign currency deposits in Korea.
“Despite the won depreciating against the U.S. dollar, individual investors started to buy additional dollars while companies postponed selling their dollar holdings as there were growing expectations of the U.S. dollar appreciating more,” said a BOK official.
The won, which was trading at 1,168.2 won against the U.S. dollar at the end of April, further depreciated to 1,190.9 won at the end of May.
The U.S. dollar wasn’t the only foreign currency that saw deposit increase in May.
Last month people purchased $140 million worth of euros to total $3.17 billion, while Chinese yuan deposits added $290 million to $1.44 billion.
However, the Japanese yen, which is the largest after the U.S. dollar as it accounts for 5.9 percent, actually shrunk. Last month’s yen deposits shrank $90 million compared to April to $3.87 billion.
While slowing economic growth played a role in driving people to stock up on foreign currency holdings, rumors of redenomination also triggered people to visit their local bank and change won to dollars or yuan.
The controversy was sparked when Governor Lee Ju-yeol, while making a report to lawmakers at the National Assembly in March, said now is a good time to discuss redenomination.
He later backtracked, stressing that the central bank neither reviewed the possibility of redenomination nor has any plan to do so, but the damage was already done.
The situation is expected to continue as financial companies introduce more dollar deposit products.
BY LEE HO-JEONG [firstname.lastname@example.org]