Drop in foreign currency bank deposits seen
Balances at the end of July totaled $69.7 billion, according to the Bank of Korea on Monday. That’s a 1 percent drop from the previous month, or $710 million less than in June.
Foreign currency deposits are defined by the bank as those owned by Koreans or foreigners who have lived in Korea for more than six months.
In May and June, foreign currency deposits rose rapidly as savers sought safer assets amid growing concerns about a weakening economy. But sentiment quickly turned following the rapid strengthening of the Japanese yen and the dollar.
At the end of July, the won traded at 1,183.10 against the dollar. This is up 2.5 percent from the end of June, when the won was valued at 1,154.70 to the dollar.
The Japanese yen appreciated 1.7 percent during the same period. The Korean won at the end of June was valued at 1,072.40 to a 100 Japanese yen. A month later, it was trading at 1,090.10 won.
Among foreign currencies, dollar holdings fell the most.
Last month, the balance in dollar accounts totaled $59.6 billion. That’s a half a percent drop from the previous month’s $59.9 billion, or $300 million less. Dollar holdings are 85.5 percent of all foreign currency holdings in Korea.
Japanese yen holdings are 5.7 percent of the total. They are down 4 percent, or $170 million, compared to June.
Holdings in other currencies, such as the euro and the yuan, fell as well, but by less.
Both corporations and individuals sold off their foreign currency holdings.
Corporate accounts, which hold 79.1 percent of all foreign currency balances, last month stood at $55.1 billion. That’s a 1 percent, or $550 million, less than in June.
Individual accounts last month totaled $14.6 billion, which is 1.1 percent, or $160 million, less.
The central bank said the drop could have been more severe.
“The number of companies selling off their dollar holdings largely on the back of the dollar appreciation against the Korean won has been expanding,” said a central bank official. “However, the dollar account decline was cushioned by some of the companies that have been increasing their dollar accounts.”
Foreign currency deposits could further shrink as the won has depreciated amid growing fears of a global recession. Since the beginning of this month the won has been trading at 1,200 won against the dollar, while the Japanese yen has further appreciated to around 1,130 won against 100 yen.
The depreciation of the won against these foreign currencies is also affecting the stock market. Foreign investors have been on a selling spree over the last 13 consecutive trading days. It is the longest selling streak in three and a half years. The last time foreign investors sold off shares for such a long period of time was between Jan. 7 and Jan. 26, 2016, when they dumped shares for 14 consecutive trading days.
BY LEE HO-JEONG [firstname.lastname@example.org]
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