By The South Asia Times

SEOUL - Foreign currency deposits in South Korea fell for the first time in five months in October, driven by declining corporate demand for U.S. dollar-denominated deposits and a rise in import settlements amid a weaker Korean won, according to data released Sunday by the Bank of Korea (BOK).

Key Decline in Foreign Currency Deposits

As of the end of October, the total outstanding foreign currency-denominated deposits held by South Korean residents stood at $98.97 billion, marking a decrease of $5.1 billion compared to the previous month. This drop comes after four consecutive months of increases, spanning from June to September, which had followed a prior four-month period of declines.

The BOK’s report considers foreign currency holdings by residents, defined as local citizens, foreign nationals residing in South Korea for more than six months, and foreign corporations. Notably, interbank foreign currency deposits are excluded from these figures.

Breakdown by Currency

The decline was observed across multiple currencies:

• U.S. dollar-denominated deposits fell by $3.1 billion, totaling $82.74 billion.
• Japanese yen-denominated deposits dropped by $540 million, settling at $9.8 billion.
• Euro-denominated deposits saw a decline of $800 million, reaching $4.18 billion.
• Chinese yuan-denominated deposits decreased by $600 million, amounting to $1.19 billion.

Corporate and Individual Deposit Trends

Corporate deposits accounted for the bulk of the decline, shedding $4.47 billion, to end at $84.28 billion. Individual foreign currency deposits also experienced a dip, decreasing by $630 million to $14.69 billion.

Weaker Won Drives Deposit Activity

The fluctuations in foreign currency deposits are closely tied to the performance of the Korean won against the U.S. dollar. In October, the Korean currency weakened significantly, with the exchange rate rising from 1,319.6 won per dollar in September to 1,383.3 won per dollar by the end of October.

This depreciation of the won likely contributed to increased import settlements, reducing the appetite for foreign currency deposits, particularly those denominated in U.S. dollars.

Wider Economic Implications

The drop in foreign currency deposits reflects broader economic trends, including currency volatility and shifting corporate strategies in the face of a strong dollar. Businesses may be prioritizing foreign currency reserves for settling international transactions as import costs rise, while individual investors may be less inclined to hold foreign currency amidst uncertain exchange rate movements.

This development comes amid ongoing global financial tightening, which has bolstered the U.S. dollar’s strength against major currencies, including the Korean won.

As global economic uncertainties persist and the U.S. dollar remains strong, trends in foreign currency deposits in South Korea will likely continue to reflect fluctuations in the exchange rate and corporate behavior. Policymakers and businesses alike will closely monitor these shifts to adapt to the evolving economic landscape.