Semiconductor firms' deposits reshape money flow

South Korea's broad money supply (M2) saw a notable increase in April, largely attributed to a surge in deposits from booming semiconductor companies. The total M2 balance reached 4,153.9 trillion won, marking a 0.6% rise from the previous month and a 5.7% increase compared to the same period last year. This annual growth rate is the highest recorded in 38 months, since February 2021.

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Banks' surveys showed a marked increase in deposits from semiconductor companies.

The Bank of Korea (BOK) identified the substantial increase in deposits from semiconductor firms as the primary driver behind this expansion. These companies are reportedly converting export earnings into Korean won and placing them in more profitable financial products. This has led to a significant shift in short-term savings, with deposits in accounts with maturities of less than two years reversing a March decline to show a 13 trillion won increase in April.

This influx of funds is altering the dynamics of the financial market. The BOK noted that when export proceeds are brought into the country and converted, it directly increases the M2. The subsequent investment of these funds into various financial instruments changes the composition of the money supply.

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This appears to be because they are converting export earnings and managing them in products with relatively better profitability.

Additionally, a vibrant stock market has attracted more funds, leading to an increase in 'other monetary products,' particularly in Comprehensive Asset Management Accounts (CMAs). These products saw an 8.3 trillion won rise in April, contrasting with a 1.9 trillion won decrease in March. While the BOK now officially reports M2 excluding investment trusts as per IMF recommendations, supplementary data still shows a significant increase when these instruments are included, reflecting the strong inflow of funds into the stock market.

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When export proceeds are brought in as foreign currency, the broad money supply increases, and the composition ratio changes as they manage it with necessary funds after conversion.