In February of 2023, residents’ foreign currency deposits in Korea declined by more than US$11.7 billion from the previous month, the largest decrease in 10 years and eight months since June 2012. This is attributable to a drop in deposits in all currencies, including the U.S. dollar and euros, as well as corporate payments for imports.
Residents’ foreign currency deposits at foreign exchange banks were US$97.52 billion as of the end of February, down US$11.73 billion from the previous month, according to data on residents’ foreign currency deposits in February of 2023 released by the Bank of Korea on March 22.
Residents’ foreign currency deposits refer to foreign currency deposits in Korea held by Korean nationals, Korean companies, foreigners who have resided in Korea for more than six months, and foreign companies doing business in Korea.
In November of 2022, residents’ foreign currency deposits crossed US$100 billion for the first time ever. However, following a decline for the first time in five months in January of this year, the US$100 billion line collapsed in February.
“U.S. dollar deposits slid due to companies paying for imports with U.S. dollars and withdrawing U.S. dollars for overseas direct investment,” a BOK official said, regarding the significant drop in resident foreign currency deposits. “Euro and yen deposits shrank due to companies selling spot exchanges.”
Moreover, as the won/dollar exchange rate, which stayed in the early 1,200 won range last month, soared and topped 1,320 won last month, there was little incentive for companies to hoard U.S. dollars.
In fact, the amount of U.S. dollar deposits plummeted. In February, U.S. dollar deposits shrank by US$8.19 billion. This contraction was more than double the decrease of US$3.04 billion in the previous month of January. Euro and yen deposits descended by US$2.15 billion and US$880 million, respectively.
By account holders, corporate deposits shrank by US$11.33 billion to US$82.95 billion and personal deposits by US$400 million to US$14.57 billion.
Korean banks logged US$86.85 billion, down US$11.6 billion, and foreign banks’ branches US$10.67 billion, down US$130 million.