Chipmakers' cash drives record surge in short-term trust deposits

Short-term money trusts with maturities under two years posted their largest monthly increase in four and a half years in July, driven by an influx of funds from chipmakers, while demand deposit savings — a key pool of short-term standby cash in the financial system — fell by the most since records began.

The Bank of Korea released monetary and liquidity data Tuesday showing the average broad money supply (M2, average balance) stood at 4,225.6 trillion won ($3.14 trillion) in July, up 12.7 trillion won, or 0.3 percent, from the previous month. That marked nine consecutive months of growth since last November. The monthly growth rate was, however, the lowest since February, when it was zero.

M2, the broad measure of money supply, encompasses cash, demand deposits and savings accounts (collectively M1), as well as short-term financial instruments that can be quickly converted to cash — including money market funds, fixed-term deposits and installment savings with maturities under two years, certificates of deposit, repurchase agreements, short-term financial bonds under two years, and money trusts under two years.

Among these components, fixed-term deposits and installment savings with maturities under two years surged 27.3 trillion won in a single month — the largest increase since December 2022.

The Bank of Korea attributed the rise to an inflow of corporate surplus funds and a partial shift of money that had previously moved into demand deposit savings for derivatives market investment back into fixed-term deposits.

Money trusts under two years also grew by 11.4 trillion won, driven by deposits from chipmakers and other companies — the biggest increase since January 2022.

Demand deposit savings shrank by 27 trillion won, the steepest decline since the series began in October 2003. The drop reflected a decrease in corporate holdings following value-added tax payments and a reduction in margin deposits for derivatives trading.

By economic sector, non-financial corporations added 20.6 trillion won and other sectors gained 6.3 trillion won, while households and nonprofit organizations saw a decline of 11.6 trillion won.

The narrow money supply measure M1 — which covers only cash, demand deposits and savings accounts — fell 2.2 percent, or 30.4 trillion won, from the previous month to 1,372.5 trillion won. It was the first monthly decline in M1 since April last year, when it slipped 0.03 percent.