Benjamin Katzeff Silberstein
This is an interesting article by Daily NK. It highlights how little we actually understand about how the exchange rate works in North Korea. Basically, their sources say that foreign currency is available in increasingly short supply, but confirm that despite reports to the contrary, exchange rates haven’t moved noticeably:
Sources report that sanctions have reduced the flow of foreign currency into and out of the country, while the amount in circulation has further fallen because residents are hoarding it. While foreign currency is still being used to pay for major transactions, residents are increasingly using local currency to pay for daily items in the local markets.
“North Koreans are using local currency more often to buy things at the market. They’d prefer Chinese yuan or US dollars, but there’s just not enough of it in circulation to use,” a source in South Pyongan Province told Daily NK.
“There are concerns that the situation could lead to an increase in counterfeit bills circulating in the country.”
“International sanctions have definitely led to a fall in circulating foreign currency,” added a North Hamgyong Province-based merchant in his 40s. “The authorities implement measures to entice people to use foreign currency at particular shops and restaurants, or demand that the wealthy make donations to the regime’s loyalty fund, but there’s no avoiding the fact that the circulation of foreign currency has fallen compared to a couple of years ago.”
“There are rumors that the Arduous March [widespread famine of the mid-1990s] is returning, so people are trying to save up and not spend anymore,” he said, adding that broader forces are at play.
Despite the developments, the exchange rate remains relatively stable. Generally, a fall in foreign currency in the market would lead to an increase in the value of foreign bills and a rise in the exchange rate. But the exchange rate between the US dollar and North Korean won has fluctuated only slightly at 1 USD to 8,000 North Korean won, while the exchange rate between the Chinese yuan and North Korean won has remained at 1:1200.
However, if there is an increase in the use of foreign currency in the markets while the overall circulation of foreign bills continues to fall, it could lead to a significant impact on exchange rates.
North Koreans turn to local currency due to foreign currency shortages
Ha Yoon Ah
I’ve written quite a few times about how all this is possible. Logically, it is. That doesn’t make it less of a mystery.
If current conditions continue, I’d be very surprised if we don’t see a sharp fall in the won soon enough. But then again, the market has defied a lot of reasonable, logical expectations already…View Original Article