Resident Foreign Currency Deposit Rises to Record High

With the economic uncertainty at home and abroad, resident foreign currency deposits have risen to an all-time high as companies try to hold on to their reserve dollars and individuals exchange assets from won to dollars.

According to the Bank of Korea (BOK) on March 26, resident foreign currency deposits remain high, standing at 14.54 billion dollars on the 21st, after a record high 14.54 billion dollars on the 19th.

Deposits of foreign currency have been on the rise from 9.87 billion dollars in September last year to 13.63 billion dollars and 13.31 billion dollars, at the end of January and February this year, respectively.

The BOK said foreign currency deposit has been increasing because companies have not sold their reserved dollars as they expect the won-to-dollar exchange rates will rise further, and some companies and individuals are purchasing more dollars.

At the same time, as North Korea`s nuclear threat and SK Global`s accounting scandal shook financial markets, there has been a widespread agreement on the foreign currency markets that `it is safer to have the dollars than won,` the central bank analyzed.

“The dollars are also not safe assets to invest because they are likely to be weak in the long term with increased fiscal and current account deficits,” said Choi Gong-pil, an analyst at the Korea Institute of Finance. “As the nation`s economic situation is so bad that reserves of won are getting more risky, funds are flowing into safer assets such as the dollar.

“So far, there has been no sign of dollars coming out of the country. But it is true that some of the rich are aggressively purchasing dollars,” said Kim Jong-gun, a manager at Woori Bank. “If economic uncertainty becomes more serious, dollars may flow out of the country.”

Resident foreign currency deposits mean foreign currency (dollars in most cases) that local companies or individuals deposited in the bank. In general, 80% or more of deposits are companies` export accounts.

Kwu-Jin Lim mhjh22@donga.com