SEOUL, Jan. 13 (Xinhua) -- South Korea's foreign currency deposits reduced for the first time in seven months due to a fall in deposits denominated in the U.S. dollar that offset the continued growth in the Chinese yuan deposits, central bank data showed Monday.
Foreign currency retail deposits came in at 48.44 billion U.S. dollars as of the end of December, down 0.17 billion dollars from a month earlier, according to the Bank of Korea (BOK). The deposits refer to those deposited by local residents and foreigners staying here for more than six months.
It was the first decline in seven months as deposits denominated in the greenback reduced sharply amid strong demand for dollar funds from local importers for the settlement purpose by the year-end.
The dollar deposits tumbled 2.9 billion dollars in December from a month earlier, but it was offset by a sharp rise in the yuan deposits that increased 2.5 billion dollars last month after gaining 2.53 billion dollars in the previous month.
"After the forward yuan-dollar exchange rate fell, arbitrage trading increased among local currency traders to gain interest rate differentials between Hong Kong and Seoul," a BOK official told Xinhua.
Local currency traders converted the South Korean currency funds into the dollar funds in the won/dollar currency swap market, before converting the dollar funds into the yuan funds in the Hong Kong yuan/dollar currency swap market, said the official.
Expectations for the appreciation of the Chinese yuan led to the lower borrowing costs in Hong Kong through the yuan/dollar currency swap market, leading local brokerages to deposit yuan funds earned via the swap trading into the local yuan deposit accounts.
Retail deposits denominated in the U.S. dollar ranked first in terms of deposit size with 35.91 billion dollars. It was trailed by the yuan deposits with 6.67 billion dollars, the Japanese yen with 2.6 billion dollars and the European single currency with 1. 95 billion dollars.
Corporate deposits fell 0.26 billion dollars from a month earlier to 43.01 billion dollars as of end-December, but those for individual clients rose 0.09 billion dollars to 5.43 billion dollars.