Yuan Popularity
According to the Bank of Korea’s data, the amount of yuan-denominated deposits in Korea increased by US$380 million month-on-month to reach US$20.35 billion as of the end of last month. Also, the ratio of yuan deposits to total foreign currency deposits jumped from 29.1 percent to 32 percent between August and September. Compared to August 2013, the amount of the deposit of Koreans, non-Koreans residing for over half a year in Korea, and foreign enterprises doing business in Korea skyrocketed 23-fold.
The rapid surge can be attributed to Korean institutional investors flocking to the Korean branches of Chinese banks to dodge the low interest rate trend. The yuan and won deposits provide an average of 3.3 percent and about 2 percent a year these days, respectively.
Still, the increment was found to have been reduced from US$3.78 billion to US$380 million between August and September. “The arbitrage trading incentive dropped in the forex market,” said Jun Jae-hwan, who analyzes capital movement at the Bank of Korea. He continued, “The yuan-denominated deposit requires the won to be changed into the U.S. dollar and then to the yuan and foreign exchange conditions having effects during the course were rather unfavorable for the Chinese currency last month.”
The size of dollar-denominated deposits, in the meantime, decreased by US$4.87 billion to US$37.22 billion in September. This is because many companies withdrew the dollar ahead of quarterly closing. Its ratio to total foreign currency deposits fell from 84.4 percent in 2013 to 61.4 percent in August, and then to 58.4 percent last month. Euro-denominated deposits dropped US$140 million to US$2.36 billion, and yen deposits declined by US$200 million to US$2.53 billion.