New Year's Seollal Holiday Sebaetdon Disappears... This Year's New Banknote Exchange 'Half of Last Year'

50,000 won bill (Photo by Yonhap News)

[Asia Economy Reporter Kim Eunbyeol] Due to social distancing guidelines amid the spread of COVID-19, visits to hometowns decreased, leading to a decline in the giving of New Year's money (Sebae money), which in turn caused a significant drop in the volume of new banknotes exchanged. Ahead of this Lunar New Year holiday, the amount of new banknotes exchanged at the Bank of Korea counters was only about half of last year's level.

According to the Bank of Korea on the 12th, from January 28 to February 9, citizens exchanged approximately 3,320 cases of banknotes for new bills at the Bank of Korea's issuing bureau counters. Even including February 10, just before the Lunar New Year holiday, this is only about half of the 7,090 cases exchanged during the 10 business days before last year's Lunar New Year holiday (January 24?27).

Demand for new banknotes at commercial bank branches also noticeably decreased compared to normal years. A representative from a commercial bank branch said, "The number of new banknote exchanges has significantly decreased compared to before," adding, "Before COVID-19, branches were busy securing new banknotes even for VIP customers, but this time it was not the case." However, under the assumption that demand for new banknotes would remain high despite fewer customers, each branch imposed a limit on the number of new banknotes exchanged per person.

The reason banks imposed restrictions on new banknote exchanges was due to the shortage of 50,000-won bills experienced by the banking sector last year. Around the Chuseok holiday last year, some branches even temporarily suspended ATM withdrawals of 50,000-won bills due to the shortage.

According to the Bank of Korea, the recovery rate of 50,000-won bills (the ratio of recovered amount to issued amount) was 25.6% at the end of last year. The recovery rate of 50,000-won bills returning to banks has sharply declined from 92.4% at the end of 2018 and 57.1% at the end of 2019. The sharp drop in the recovery rate is due to increased demand to hold cash amid the unstable situation caused by the COVID-19 crisis. The decrease in cash deposits at banks was also influenced by self-employed individuals, who conduct many cash transactions, earning less due to social distancing measures.

The Bank of Korea estimated the circulation channels of 50,000-won bills and found that the cash acquisition ratio of sales in the food and accommodation industry was 18.6%, higher than manufacturing (2.2%) and construction (0.9%). Although credit card payments increased, self-employed individuals in the food and accommodation sectors still earn a large portion of their income in cash, which was impacted. Deposits of 50,000-won bills at duty-free shops, casinos, tourist area-adjacent stores, currency exchange operators, and ATMs also significantly decreased. In contrast, the proportion of cash spending by workers in these industries (food and accommodation 11%, leisure services 7.8%) was lower than their sales ratio. Ultimately, the amount of 50,000-won bills earned through self-employed individuals sharply declined, and those self-employed individuals either saved or stored the cash in banks.

Meanwhile, the amount of money circulated in the market during the 10 business days before the Lunar New Year holiday decreased compared to last year. The Bank of Korea supplied 4.7475 trillion won in currency (net issuance) to financial institutions from January 28 to February 10, which is 881.4 billion won (15.7%) less than the same period last year. Net issuance is the amount issued by the Bank of Korea minus the amount recovered back into the Bank of Korea's vault. The Bank of Korea calculated net issuance by adding the supply performance from January 28 to February 8 and the expected supply from February 9 to 10. During this period this year, the Bank of Korea issued 5.0183 trillion won and recovered 270.8 billion won.

The Bank of Korea explained, "Although the three-day Lunar New Year holiday period was the same as last year, social distancing during the holiday led to refraining from hometown visits and banning private gatherings of five or more people, resulting in a decrease in net issuance compared to last year."

Net issuance decreased significantly in the metropolitan area (Issuing Bureau -20.6%, Incheon Headquarters -41.2%, Gyeonggi Headquarters -25.1%) and Gyeongnam Headquarters (-22.1%). Jeju Headquarters (107.9 billion won → 113.7 billion won) was the only region nationwide where net issuance increased compared to last year.

This content was produced with the assistance of AI translation services.