{"id":4756,"date":"2020-11-25T21:15:40","date_gmt":"2020-11-25T12:15:40","guid":{"rendered":"http:\/\/www.01.asiapress.org\/rimjin-gang\/?p=4756"},"modified":"2022-01-24T15:26:35","modified_gmt":"2022-01-24T06:26:35","slug":"rapid-appreciation","status":"publish","type":"post","link":"https:\/\/www.02.asiapress.org\/rimjin-gang\/2020\/11\/recommendations\/rapid-appreciation\/","title":{"rendered":"\uff1cInside N. Korea\uff1e Investigating the Cause of the Suspiciously Rapid Appreciation of the N. Korean Won"},"content":{"rendered":"
\"\"

(Photo) Foreign currency exchange rates and inflation trends in North Korea. (ASIAPRESS)<\/p><\/div>\n

It was at the end of October that the abnormality was detected. The exchange rate of the North Korean won against the RMB and the U.S. dollar suddenly surged.<\/p>\n

This year, the foreign exchange market\u2019s rate for 1 RMB was around 1,200 won. However, the won\u2019s value suddenly saw an increase of 30% to 830 won against the yuan. The value of the North Korean against the dollar, meanwhile, also increased. The value jumped from 8,200 won per dollar to 6,500 won per dollar- an increase of 20%.<\/p>\n

When the value of foreign currency fell by 20-30%, panic spread among North Koreans. An reporting partner in the northern region of Ryanggang Province is quoted as saying:<\/p>\n

\u201cSome say that the yuan and the dollar will fall further still, and others say they will return to their original rate once trade with China resumes. Market traders have had a hard time pricing their goods. Some traders say it's an opportunity to buy yuan and dollars.\u201d<\/strong><\/p>\n

However, the North Korean won is not officially convertible into foreign currencies and is not traded in the international foreign exchange markets. So, what exactly is the North Korean foreign exchange market?<\/p>\n

\"\"

(Photo) Women merchants in Hyesan Market, Ryanggang Province. The market used to trade mainly in Chinese yuan. Photographed in August 2013 by ASIAPRESS<\/p><\/div>\n

\u25c6 Thorough crackdown on foreign currency black markets<\/h2>\n

The official exchange rate announced by the North Korean authorities is 1 dollar for roughly 100 won, however, the exchange rate is much different at black markets. As the Chosun Trade Bank unofficially discloses the market price every day, illegal currency exchangers called 'Money Dekos' use this as a reference along with locally gathered information to set their own exchange rates. As such, the exchange rates have been fluctuating greatly over recent weeks.<\/p>\n

The main foreign currency in circulation in Pyongyang is the U.S. dollar, but the RMB is dominant in other regions. Over the past decade or so, the North Korean won has lost credibility domestically, prompting residents to use foreign currency extensively in their daily lives.<\/p>\n

\u201cWe use RMB even to buy a single piece of tofu\u201d... \u201cbribes and fines are also paid in RMB,\u201d provincial city residents explained.<\/p>\n

This isn't to say that North Korean won can't be used, but after the day's business is over, most merchants will bring won to currency exchangers and have it converted to RMB. This is to protect their assets.<\/p>\n

Anxiety about foreign exchange reserves first began in early November of last year. Suddenly, the government began to crack down on the use of foreign currency. The trigger was a direct order from Kim Jong-un.<\/p>\n

Kim Jong-un spoke with condemnation saying, \u201cHandle foreign currency well, but at the same time don\u2019t neglect one's own currency.\u201d Since Kim Jong-un\u2019s criticism, the number of crackdown personnel in the market has doubled. The use of foreign currency is forbidden and, if caught, the entire amount of cash is confiscated. The arrest of 'Money Dekos' has continued.<\/p>\n

In the name of cracking down on the use of foreign currency, Kim Jong-un intends to absorb foreign currency held by residents and prevent the decline of the local currency.
\nNextPage: Are restrictions on the use of dollars imported by diplomats a major blow to Pyongyang residents?<\/strong><\/p>\n

\"\"

(Photo) A woman sock merchant offering change in RMB. Photographed in Ryanggang Province in October 2013 by ASIAPRESS<\/p><\/div>\n

\u25c6 Are restrictions on the use of dollars imported by diplomats a major blow to Pyongyang residents?<\/h2>\n

According to reporting partners from several regions, \u201cNow, it has completely changed, and only domestic currency is used in the market. It is because people are afraid that their money will be confiscated and they will be arrested.\u201d On the other hand, local banks are still doing foreign currency exchanges. However, these rates are said to be 5 to 8% worse than those offered by \u201cMoney Dekos.\u201d<\/p>\n

There is also talk among diplomats and employees of international organizations in Pyongyang that the control of foreign currency transactions began at the end of October. On the Facebook page of the Russian embassy in Pyongyang, a message was posted saying that U.S. currency could not be used in foreigners-only stores. RFA (Radio Free Asia) and NKNEWS, both media specializing in North Korean reporting, also featured similar news.<\/p>\n

Pyongyang is the most common place to use foreign currency. As the value of foreign currency has dropped by 20 to 30%, the impact will be huge. ASIAPRESS asked a reporting partner living in the northern part of the country about the situation in Pyongyang.<\/p>\n

\u201cEven in markets and stores in Pyongyang, what used to be priced in dollars or yuan is now priced in domestic currency, so the impact of the decline is said to be great for those who made a living in dollars. Those who do not have financial resources are facing no choice but to sell their foreign currency. In Pyongyang, it is said that foreign currency is often confiscated by the authorities.\u201d<\/strong><\/p>\n

Most of North Korea's foreign exchange earnings agencies are concentrated in Pyongyang. In the aftermath of the coronavirus disaster, there has been a slump everywhere, and a number of trading companies have been suspended. This fall in foreign currency will deal an additional blow to the rich and those involved in foreign exchange earnings.<\/p>\n

\"\"

(Photo) Trends in trade with China from January to October 2020. The sluggish trade is evident in the figures. Summary of statistics from China's customs office (Figures compiled by ASIAPRESS)<\/p><\/div>\n

\u25c6 Rapid decline in foreign currency income due to Coronavirus<\/h2>\n

As economic sanctions were strengthened by the UN Security Council in 2017, exports to China in 2018 fell 86% compared to the previous year. In 2019, while focusing on the export of non-sanctioned items, there was some recovery, but at the end of January this year, trade was almost stopped entirely due to the closing of the border to block the influx of the coronavirus.<\/p>\n

Exports to China from January to September fell by more than 70% compared to the same period last year. As noted above, this marked a huge drop compared to pre-sanction figures, about a 95% decrease compared to 2016. Revenue from tourism was also cut off due to the coronavirus. Profits from the dispatching of workers overseas also appear to have stagnated due to the influence of coronavirus in China. North Korea's foreign currency imports must have therefore been hard hit. There has also been a massive setback in importing essential goods.<\/p>\n

\u201cAutomotive parts and equipment are not coming from China, so more and more vehicles are no longer operational.\u201d<\/strong> (Reporting partner in Sinuiju City)<\/p>\n

\u201cThe electricity supply has deteriorated. An official at the distribution ministry said that electricity production was falling because trade was stopped and the power plant machinery could not be repaired.\u201d<\/strong> (Reporting partner in North Hamkyung Province)<\/p>\n

\u25c6 Is the won's surge a product of artificial manipulation?<\/h2>\n

North Korea wants to resume trade with China as soon as possible. Fortunately, China is resuming economic activities as the coronavirus epidemic has subsided dramatically. According to a reporting partner in Sinuiju City, word came from an official who said, \u201cStarting from the beginning of the year, preparations for the resumption of trade have begun slowly.\u201d<\/strong> If there is no re-emergence of coronavirus in China, there is a possibility that trade will resume around the 8th Labor Party Congress which is scheduled to be held in January.<\/p>\n

It can be said that the Kim Jong-un regime's preparation for resumption of trade is likely to be the reason for the sharp rise in the value of the won. It is highly likely that the authorities, which need foreign currency to import essential goods, are collecting foreign currency on favorable terms by strictly banning the use of foreign currency in North Korea, and manipulating the exchange rate set by the Chosun Trade Bank.<\/p>\n

However, an artificial exchange rate which ignores the actual value of the won will not last long. If the resumption of trade is confirmed, demand for foreign currency in North Korea will rise at once and the black market will be activated, which will lead to a weaker won. (ISHIMARU Jiro\/Kang Ji-won)<\/p>\n

\u203b ASIAPRESS contacts its reporting partners in North Korea through smuggled Chinese mobile phones.<\/p>\n

\n
\uff1cRelated Article\uff1e<\/div>\n