Dollar Deposits in South Korea Drop to Lowest Level Since 2020

The balance of domestic dollar deposits has dropped to its lowest level in four years due to the impact of exchange rates, according to the latest data from the Bank of Korea.

In its “Resident Foreign Currency Deposit Trends” report released on June 21, the Bank of Korea revealed that the balance of resident foreign currency deposits in domestic foreign exchange banks stood at $86.57 billion as of the end of May. This marks a decrease of $2.39 billion from the end of the previous month.

Resident foreign currency deposits refer to foreign currency deposits in Korea held by Korean nationals and companies, foreigners residing in Korea for more than six months, and foreign companies operating in Korea. By currency, the balance of dollar deposits decreased by $2.12 billion to $72.21 billion. Dollar deposits account for about 80% of total foreign currency deposits. The balance of dollar deposits at the end of last month was the lowest since May 2020, when it stood at $69.92 billion.

The Bank of Korea explained, “The balance of dollar deposits decreased due to payment for import settlements and the perception that the current strong dollar has led to high exchange rates.” Generally, when the won-dollar exchange rate rises, the demand for holding dollars by companies and individuals decreases, while the demand to sell increases. Last month’s average won-dollar exchange rate was 1,365.39 won.

In addition to the decrease in dollar deposits, euro deposits also saw a decline of $350 million. Conversely, yen deposits increased by $360 million. The Bank of Korea noted, “The increase in yen deposits appears to be due to expectations that the value of the yen will turn strong in the future, leading to an increase in investment deposits by non-bank financial institutions and personal deposits.”