Both inflation and exchange rates have been on the rise in North Korea for a number of years. For the briefest moment after the currency redenomination of November 2009, rice was priced at 25 North Korean Won/kg and 38 North Korean Won was enough to buy $1! However, these were artificial price reductions, and both indices have since risen considerably, as high as 7,700 won and 9,300 won respectively.
In other words, the price of rice has gone up 300-fold, and exchange rates 240-fold. There is the ever-present danger that the North Korean currency will lose even more value, entering the type of hyperinflationary spiral that condemned the German currency after the First World War. Some experts even see this phenomenon as more of a threat to the North Korean regime than international sanctions.
Obviously, exchange rates increase the price of not only rice but also agricultural, fishery products and commodities, and since poorer people are less able to access foreign currency in their daily lives, an action that is used to insulate more affluent demographics against currency depreciation, their savings constantly lose value.
A source from Hyesan in Yangkang Province explained the market atmosphere to Daily NK, saying, “Exchange rates and inflation are continuously on the up, so we never know what the price will be tomorrow. Prices themselves have little meaning under these circumstances, so most wholesale traders are confused by the unstable prices. Small-time traders are often the ones who suffer.”
Prices did begin to decline recently, however, beginning in Pyongyang and spreading across the country. Rice prices were falling by 200-300won per day at one point, and on one day, February 6th, rice fell by 2,500won in Pyongyang and 1,000won in provincial cities. Exchange rate also fell at that time; however, this may prove to be just a temporary blip.
A Pyongyang source explained, “Exchange rates and rice prices in Pyongyang affect prices in all other regions of North Korea. Pyongyang money changers and small rice retailers have contacts in each region and set exchange rates and rice prices a few times a day by phone.”
A Hyesan source continued the story, explaining, “It seems that cross-border trading firms have been supplying extra rice to Pyongyang of late due to orders from the authorities, who were worried about the skyrocketing rice price in that city.” Lunar New Year and Kim Jong Il’s birthday, which fell a week apart, are likely to have influenced the decision.
However, such temporary fixes cannot stop the broader movement toward a weaker North Korean Won, sources and experts alike note. There is no chance that demand for Chinese Yuan or U.S. Dollars will fall, they say, and this will inevitably keep the North Korean Won weak. The only safe haven will remain Chinese and U.S. currency.
