According to data released by the South Korean central bank, the Bank of Korea, the importance of the Chinese currency is rapidly increasing in the country as yuan deposits grew by an impressive 35% in July reaching $16.2 billion. It was the 13th month growth in a row for the yuan in the East Asian country and the highest on record.
South Korea was only assigned a yuan clearing bank last month (July 2014), and it was granted an 80 billion yuan ($12.98 billion) quota by the Chinese central bank to invest in the largest economy in Asia and its capital markets. The Chinese currency’s market share is currently 25.9% of all foreign currency deposits in South Korea, compared with 64.5% for U.S dollar deposits.
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The explosive change in the country is attributed to advertising campaigns run by Chinese banks ‘grabbing’ Korean savers who are searching for high-yield investments in a global environment for near zero returns. The banks can then deploy the money in the Chinese market where raising funds can be costlier for them at present.
This development in South Korea is further evidence of the Chinese plan to reshape the international monetary order in the future and base all possible global trade flows on the yuan, toppling the U.S dollar from absolute dominance. The expanding options and venues for yuan clearing established recently are a central part of that.
Daniel Chan, director at an investment consultancy in Hong Kong, who visited South Korea in July described the change to Reuters, he said: “It’s very convenient to convert yuan to won now in Korea, and some big shops there even began to receive yuan payments when you buy goods there. Several years ago when I was there, I had to first convert the yuan to dollars and then to won. My feeling is that South Korea’s interest in having more yuan reserves has been increasing over the past few years.”