The North Korean authorities are reportedly trying to obtain hard currency from trading companies by paying above market exchange rates for it, but with mixed results.
One trader from North Korea explained to Daily NK in Dandong on the 13th that the authorities have recently been offering to trading companies to exchange foreign currency for the North Korean won at inflated exchange rates through Chosun Trade Bank and other similar institutions.
The trader explained, “In October the authorities told us to raise the value of Chosun money against the Chinese Yuan by exchanging the Chinese money.”
However, this has not met with much success, he added, saying, “Smart, rich traders didn’t give up their hard currency and saved it all in the trade bank.”
Currently the credibility of North Korea’s domestic currency is falling while exchange rates are rising rapidly. As a result, the preference for U.S. Dollars and Chinese Yuan is very strong and trade company managers prefer to keep their reserves in a trade bank rather than keeping it in domestic currency.
In particular, by saving their funds in trade banks at the city and county level in this way, traders can avoid the danger of official inspections revealing private hoards, which is illegal, they can pay fixed levels of commission and can also obtain relatively secure loans of hard currency, although these services naturally require that they pay bribes to the bank management.
However, other managers regard North Korea’s banks as a trap into which they are unwilling to fall, while some simply reject the complex process of withdrawal, preferring to hold their reserves privately in cash..
The skepticism of the latter group has recently been proven wise, for while trading companies and enterprises in need of capital are supposed to be able to submit forms explaining the situation to the bank in order to receive loans in hard currency at 3-5% interest, there have recently been cases of companies being unable to obtain such loans at all due to an overall lack of available hard currency.
Meanwhile, skeptical traders assume that the latest attempt to get them to trade in their secure foreign currency for the risky North Korean Won is just another maneuver in the battle to get the funds to pay for events coming up in 2012.
“The authorities are in continual need of foreign currency due to their preparations for various events and for the construction of 100,000 homes in Pyongyang,” the source said. “People think that is why the price of foreign currency is constantly getting higher.”