An exclusive Daily NK report that even low denomination
transactions in North Korean markets now regularly take place in foreign
currency rather than the country’s own
Korean People’s Won (KPW) offers fresh
evidence of the grave threat that hard currency usage poses to North Korea’s fiscal sovereignty.
According to internal North Korean sources, in recent times
transactions have started to take place entirely in Chinese Yuan (RMB). When
100 Yuan is presented in payment, the transaction is computed at the daily
black market exchange rate and change is then provided in 10 and 1 Yuan bills.
This is a new development; previously, it was the absence of small denomination
bills and coins that precluded completing transactions in hard currency.
According to sources nearer Pyongyang, payments for private
tutoring in English and Chinese in the capital are also frequently paid for in
foreign currency, notably U.S. Dollars. Back on March 11th, Daily
NK also reported that payment for trips by “servi-cha” or private bus are also being done in
hard currency in the modern era.
The cause of these changes is clear. Ever since the North
Korean authorities implemented an economically ruinous flash currency
redenomination on the morning of November 30, 2009, the public’s preference for foreign currency holdings
has grown all the more intense, and the value of the KPW has gone into
concomitant deep decline.
Reviewing this slow but steady push for more and more hard
currency transactions, South Korean experts declare it a grave threat to the
fiscal sovereignty of the North Korean state. The problem is not merely the
2009 currency redenomination, they say; evidence of fiscal incompetence and
widespread malfeasance on the part of the authorities becomes clearer with
every economic policy that fails to take off. Popular suspicion of domestic
currency increases in lockstep, and the desire of people to hold hard currency
grows.
Official policy calling for restriction of foreign currency
transactions, which periodically emerges, does not have the desired effect of
limiting usage, either. On the contrary, it drives the preference for hard
currency holdings.
Cho Bong Hyun of the IBK
Economic Research Institute told Daily NK, “The currency
redenomination was a big shock, trust in the authorities’ policies has declined, there is concern over the dangers of
inflation, and therefore faith in local currency has dropped. It’s a vicious circle. If they are going to resolve this they will need to
implement a credible currency policy, but they aren’t going to do that.”
“They
have to show that they have the capacity to solve the country’s economic woes, but that is not easy when
you haven’t
got any hard currency reserves and you are finding it tough to attract
investment,” he went on. “In the absence of some form of reformist
change in the economic sphere, they will not stop this declining faith in
domestic currency no matter what they do.”
Korea Rural Economic
Institute (KREI) Vice-president Kwon Tae Jin agreed, saying, “Most North
Koreans survive off trade, and most people are increasingly aware of problems
with the KPW; so hard currency usage is rising accordingly. The news that small
change is being given in foreign currency makes it abundantly clear that state
attempts to crack down on this phenomenon have failed completely.”
“This is not a political problem. If they don’t open their
economy to the outside and implement a basket of measures to improve matters,
then this problem will never be solved,” Kwon predicted.
