Dollar deposits in March fell by more than $10 billion from the previous month, the Bank of Korea said on the 22nd. The drop was the largest since statistics began in June 2012. The decline was driven by increased demand to sell held dollars to realize gains as the won-dollar exchange rate climbed to 1,530 won per U.S. dollar. The rise in the domestic stock market also reduced the scale of overseas stock investment.
According to March resident foreign-currency deposits trends surveyed by the Bank of Korea, as of the end of March, the balance of resident foreign-currency deposits at foreign-exchange banks was $102.17 billion, down $15.37 billion from the end of the previous month. It was the largest decline since statistics began. Resident foreign-currency deposits refer to domestic foreign-currency deposits held by Korean nationals, domestic corporations, foreigners who have resided in Korea for more than six months, and foreign corporations that have entered the domestic market.
Dollar deposits stood at $85.64 billion, down $10.36 billion. Corporate accounts fell $8.91 billion to $72.71 billion, and individual accounts fell $1.46 billion to $12.92 billion.
The Bank of Korea said exchange rate gains increased the scale of currency exchange and that demand for won rose due to March corporate tax payments. As the won-dollar rate climbed from 1,439.7 won on Feb. 27 to 1,530.1 won on Mar. 31, demand increased to sell held dollars to capture exchange gains. A Bank of Korea official said, "Corporations sometimes exchange currencies after watching the upward trend in the exchange rate."
The rally in the Korea Composite Stock Price Index (KOSPI) to consecutive record highs also prompted many Korean retail investors trading U.S. stocks to turn their attention to the domestic market. When individuals' U.S. stock investing declines, dollars deposited at securities firms decrease and corporations' foreign-currency deposits also fall. According to the International Finance Center, the net purchases of overseas stocks by domestic individuals in March totaled $1.51 billion, less than half of the previous month's $3.85 billion.
Yen deposits were found at $7.82 billion, down $1.49 billion; euro deposits were found at $6.31 billion, down $3.28 billion; and yuan deposits were found at $1.17 billion, down $60 million. The Bank of Korea explained, "Euro deposits decreased due to remittances for settlement payments to overseas parent corporations, and yen deposits decreased due to securities firm investors' margin deposits and current payment disbursements."