Quarrels are breaking out between lenders and borrowers due to the sudden rise in the North Korean won-Chinese yuan (KPW-RMB) exchange rate recently, Daily NK has learned.
A source in North Hamgyong Province told Daily NK last Thursday that “quarrels have been breaking out recently between some lenders and borrowers in Hoeryong,” adding that the fights “are due to the KPW-RMB exchange rate climbing higher than when the money was borrowed, which has led lenders to try and collect their loans at the higher rates.”
According to the source, the yuan — which had been trading at KPW 900 as recently as early December — has been strengthening since mid-December and is now trading at KPW 1,155 in Hoeryong.
The yuan dropped as low as KPW 500 after North Korea closed the borders in January 2020. It then climbed into the KPW 800s this year before again rising to KPW 1,155 more recently.
The increase in the exchange rate by over 30% this year has led to fights between lenders and borrowers.
The source said the quarrels are breaking out as lenders tell borrowers to pay more North Korean currency based on the value of the yuan. He said many lenders are trying to avoid dwindling reserves of yuan “by passing on the difference to the borrowers.”
In fact, one resident of Hoeryong borrowed KPW 1.6 million in February, paying interest every month and using the principle as seed money. However, he had a big fight with his lender when he recently tried to pay back his loan at the end of the year. The lender claimed that the KPW 1.6 million was now KPW 2.31 million based on the current KPW-RMB exchange rate.
A fight immediately ensued because this meant the lender would have to pay an extra KPW 710,00.
The lender complained that the transaction was made in North Korean currency, not Chinese, and that the lender was bringing up the exchange rate and telling him to pay up at the higher market rate out the blue.
A fight between another individual and his lender over the same issue in Hoeryong resulted in the police being called, the source said. The individual borrowed KPW 2 million when the yuan was trading at KPW 850, using the money to earn a living selling industrial goods. On Dec. 23, however, the lender told him to pay back KPW 2.71 million since the exchange rate had increased.
This led to an argument and then a physical altercation. The police dragged the individual down to the station, where they made him write a self-criticism letter and warned him that if he caused a disturbance again, they would send him to a forced labor camp.
The source said the fights are erupting because lenders and borrowers typically make deals without putting together detailed contracts.
Moreover, business people who borrowed foreign currency to conduct commerce in North Korean currency are also suffering major losses following the dramatic rise in the KPW-RMB exchange rate.
Generally, this is because business people were unable to sell products at prices that would cover the losses from the higher exchange rate, and if they pay back their principle at the currently higher rate, they will need to pay an extra KPW 35,000 or more for every RMB 100.
Because the deals were made using Chinese currency, borrowers have to shoulder the entire difference created by the higher exchange rate, the source explained.
“Most people are welcoming the higher KPW-RMB exchange rate, but many people have been hurt by it, most of whom have no money,” he said. “Because of this, they are living even tougher lives, and they cannot escape from the debt.”
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