It was found that the balance of dollar deposits accumulated by individuals and companies at the five major commercial banks increased by 12% in the last month alone. About 70% of the increase in dollar deposits occurred after December 24, when the government actively intervened in the market, saying, “Excessive weakening of the won is undesirable.” It is analyzed that despite the authorities’ move to stabilize the won-dollar exchange rate, there was high demand from individuals and companies to use this as an opportunity to purchase dollars.
◇Demand for dollars increases at the end of the year
According to the financial sector on the 4th, the dollar deposit balance of the five major banks, including Kookmin Shinhan Hana and Woori Nonghyup, was calculated to be $66.523 billion as of the end of last year. Compared to the end of November last year ($59.653 billion), it increased by 11.5% ($6.87 billion) in just one month. This is a steeper figure than August 2024 (10.3%), when demand for dollars surged due to Israel’s air strikes on mainland Yemen.
Dollar deposits at the five major banks decreased by $3.737 billion on a cumulative basis from January to November last year. However, the dollar deposit balance at the end of the year increased by nearly $7 billion in December alone, reaching the largest amount in about three years since January 2023 ($69.543 billion).
In particular, it has increased intensively since December 24th of last year. On the 24th of last month, the Ministry of Strategy and Finance at the time took market stabilization measures to alleviate the rapid volatility of the won-dollar exchange rate, saying, “We will demonstrate the government’s strong will and ability to implement policies (to stabilize the exchange rate).” At one of the five largest banks, 70% of the increase in monthly dollar deposits last month occurred between the 24th and 31st.
An official from a commercial bank said, “The government has taken active market stabilization measures to dampen market sentiment expecting a rise in the won-dollar exchange rate, but dollar purchases have surged since the 24th, regardless of individuals and companies.” He added, “Given that the public holiday (Christmas Day) in particular saw a record-high increase in dollar deposits for companies on the 26th, it appears that many trading companies have decided that this was an opportunity to stockpile dollars.”
◇“Demand for dollar storage still remains”
The government is continuously implementing policies to encourage expansion of the supply of dollars in the market to stabilize the exchange rate. On the 23rd of last month, it decided to permanently implement the National Pension Service’s foreign exchange hedging strategy, sending a signal that dollars could be released on a large scale to the market at any time. In addition, on the 24th, a carrot plan was introduced: capital gains tax exemption for individual investors who sell overseas stocks and buy domestic stocks. Previously, on the 19th, Kim Yong-beom, head of the Blue House policy office, gathered the chief financial officers (CFOs) of seven major export companies, including Samsung Electronics and Hyundai Motor Company, and asked them to cooperate for a smooth supply and demand of dollars, saying, “Don’t do anything that will be misunderstood.”
The foreign exchange authorities’ dollar supply measures were also aimed at suppressing excessive increases in the exchange rate. This was interpreted as an attempt to send a signal to the market that the exchange rate could stabilize downward at any time. However, analysis suggests that the large increase in dollar deposits following the authorities’ market stabilization measures suggests that the market’s waiting demand for securing dollars remains strong despite the authorities’ measures.
As market expectations for a weaker won still remain, the exchange rate is also slowly rising. In the Seoul foreign exchange market, the won-dollar exchange rate (as of 3:30 p.m.) fell from 1,483 won and 60 won on December 23 to 1,429 won and 80 won on the 29th, but rebounded to 1,439 won on the 30th. On the 2nd of this month, it rose further to 1,441 won and 80 won.
Some believe that the won-dollar exchange rate will stabilize downward. For this reason, it is pointed out that hasty chase purchases should be cautious. Park Sang-hyun, an expert at iM Securities, said, “The won is expected to strengthen this year due to the inclusion of Korean government bonds in the World Government Bond Index (WGBI) scheduled for April and the continued buying trend of foreigners in the domestic stock market. Since the won-dollar exchange rate is likely to fall to the mid-to-late 1,300 won range within the first half of the year, it is not advisable to buy dollars aiming for short-term exchange gains.”
Meanwhile, yen deposits at the five major banks increased by 8.4% from 1.131 trillion yen at the end of November last year to 1.226 trillion yen at the end of December. This is the highest increase rate since November 2023 (14.1%). There is an analysis that the sharp drop in the won-yen financial exchange rate (3:30 p.m.) from 950 won-51 won per 100 yen on the 23rd of last month to 915 won-39 won per 100 yen on the 29th stimulated demand for buying the yen at low prices.
Reporter Jeong Eui-jin
