As Interest Rates Rise, Sinsa Imdang Returns... 50,000-Won Bill Recall Rate Hits Record High

Asia Economy DB

50,000 won bills are pouring out from wardrobes and safes into the market. This is interpreted as being influenced by the rise in the base interest rate and market interest rates, making it more advantageous to keep money in savings or time deposits rather than holding large bills, as well as an increase in face-to-face economic activities.

According to currency supply and demand data received by Yang Kyung-sook, a member of the National Assembly's Planning and Finance Committee from the Democratic Party of Korea, from the Bank of Korea on the 6th, the issuance amount of 50,000 won bills in the first half of this year was about 10 trillion won, and the amount recovered was 7.8 trillion won. The recovery rate, which is the ratio of the amount recovered to the amount issued, was 77.8%. This is the highest recovery rate for the first half of the year since the issuance of the 50,000 won bill began in June 2009.

When the Bank of Korea issues currency, the currency circulates in the market and is then deposited into financial institutions in the form of deposits or tax payments. Financial institutions keep some as cash on hand and deposit the rest back to the Bank of Korea; the amount returned at this time is the recovered amount. The recovery rate is the ratio of the recovered amount to the issued amount during the period, and a high currency recovery rate means that the currency is actively circulating in the market.

The recovery rate of the 50,000 won bill steadily increased after its initial issuance in 2009, reaching the 50-60% range between 2017 and 2019, but dropped to the 10-20% range during 2020-2021 when COVID-19 spread.

This was due to reduced face-to-face transactions caused by social distancing measures and increased demand to secure large bills in advance amid economic uncertainty. However, with the easing of quarantine regulations last year, consumer sentiment recovered, and the Bank of Korea raised the base interest rate by 3.00 percentage points over a year and a half starting from August 2021, which increased the recovery rate.

According to the Bank of Korea, the average interest rate on savings deposits at deposit banks (weighted average based on new contracts) rose from 1.03% per annum in August 2021, when the Bank of Korea began raising the base rate, to 4.29% per annum in November last year. It then fell to 3.43% in April but rebounded in May and was recorded at 3.69% in June.

The deposit balance at deposit banks increased from 2,253.7 trillion won at the end of August 2021 to 2,480.6 trillion won in November last year, and was recorded at 2,427.8 trillion won in May.

Meanwhile, the increase in the recovery rate of large bills is also observed in other countries continuing monetary tightening. The recovery rate of the US $100 bill fell to 51.0% in 2020 but rose to 81.3% in 2022, and the recovery rate of the Eurozone €200 bill also dropped to 46.5% in 2020 but increased to 104.8% last year.

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