North Korea might well have greater currency reserves than most people think, says a South Korean economics professor.

Hanyang University’s Jang Hyung Su put forward his suggestion in a paper, “Study of the estimated supply and demand for foreign currency of North Korea in the 2000s,” which was first released publicly at an off-the-record seminar held by the Korea Development Institute late last month but subsequently released on the KDI website in early November.

In it Jang stated, “North Korea may have accumulated a significant amount of foreign currency since 2000.”

“Since October, 2002, when the second North Korea nuclear crisis occurred and the international community strengthened economic sanctions against North Korea, North Korea has presumably had to reduce its illegal activities such as exporting arms and drugs, and producing counterfeit bills,” Jang explained, “Furthermore, South Korea suspended rice and fertilizer aid to North Korea, but North Korea remained in the black.”

According to Korea Trade-Investment Promotion Agency (KOTRA) statistics, the North Korea’s balance of trade deficit for the nine years between 2000 and 2008 is more than $9 billion. Therefore, North Korea experts wonder how the country has filled this enormous foreign currency gap.

Jang went on, “Therefore, the majority of experts believe that the North earns foreign currency through arms and drug dealing and counterfeit bills.”

However, that is not all. As Jang noted, “Besides this, there may be great amount of foreign currency circulating in North Korea which the authorities do not know about. In such cases, the route of foreign currency circulation is the “foreign currency earning business.”

He explained that luxury goods, which are not caught by statistics, can be sent into North Korea in secret by companies from third party countries and via diplomats.

Since the mid-1990s, when the lack of foreign currency grew serious, the authorities have encouraged the workers in charge of foreign currency-earning businesses, established trading companies and lifted regulations against foreign currency possession. As a consequence, in early 2000, the authorities gradually lost part of their power to regulate foreign currency flows.