South Korea's foreign currency deposits witnessed their largest-ever monthly decline in March, driven by companies converting their foreign exchange assets into the local currency as the won weakened.
Data released by the Bank of Korea on Wednesday showed that foreign currency deposits held by residents—including domestic firms, foreigners residing in the country for more than six months, and foreign companies operating in South Korea—fell by $15.4 billion from the previous month. The total balance stood at $102.2 billion at the end of March. The reduction was primarily due to changes in corporate account balances.
The central bank noted that the won depreciated from around 1,440 per U.S. dollar at the end of February to approximately 1,530 by the end of March, prompting companies to increase their foreign exchange conversion into the local currency. Outflows were also attributed to overseas investment expenditures and tax settlements.
The decline in deposits indicates that, despite strong underlying demand for U.S. dollars, companies took advantage of the won's fall to historic lows in March to complete payment settlements and adjust their asset structures. For South Korea, a major energy importer in Asia, high oil prices and safe-haven capital outflows have continued to weigh on the won. However, the trend of corporate conversion may provide some support to the local currency.
The outflows were predominantly in U.S. dollar deposits, which decreased by $10.4 billion. Euro and Japanese yen deposits also declined. Corporate foreign currency deposits fell by $13.4 billion, while individual deposits decreased by $1.9 billion.
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