The North Korean authorities have been assessing the reserves of foreign currency held by North Koreans and are urging them to deposit any non-North Korean cash at banks. A Daily NK source said that, in the long-term, the authorities plan to ban the use of foreign currency in transactions between North Korean citizens.
A source in Yanggang Province told Daily NK in a phone call last Friday that “the financial departments in each province’s people’s committee recently requested that all residents report any foreign currency in their possession” and that “the authorities are forcing [the people] to deposit their foreign currency at banks and use officially-issued bank cards [to make transactions] instead [of dollars or yuan].”
This directive follows an order by the authorities last year that North Koreans use debit cards and smartphone applications managed by state-run trade banks and major regional banks.
Last year, North Korean authorities also banned the use of “mobile money” payments for “convenient money transfers” and other transactions. The authorities instructed people to use banks for money transfers and separate mobile apps for “convenient payments.”
At the time, a source told Daily NK that the authorities gave this order to more closely monitor the flow of money and to absorb foreign currency owned by ordinary people, something many North Koreans did not appreciate.
The recent order to survey people’s reserves of foreign currency and for foreign currency to be deposited into banks is more coercive than past measures, however. The refusal to cooperate with past efforts to absorb foreign currency seems to have led the authorities to fall back on more forceful measures.
In fact, the order appears to be a further attempt to halt “dollarization,” which is when people use foreign currency such as USD to make transactions instead of local currency. If the value of the KPW continues to drop, it becomes more difficult for the North Korean authorities to use monetary policy to boost the economy or respond to volatility in prices and currency rates. In turn, if KPW depreciation weakens their capability to respond to economic phenomena that disrupts the lives of North Koreans, it could weaken the North Korean state itself.
During the National Bank Workers’ Conference in 2015, North Korean leader Kim Jong Un emphasized that normalization of the banking system and increased use of the KPW are the most important conditions for achieving a resilient national financial system.
However, North Koreans showed a strong aversion to currency reform when the government attempted it in 2009. The currency revaluation completely wiped out many people’s savings and created a strong distaste for currency reform. In the years following the 2009 reforms, the authorities have had to be cautious with policies that might result in the absorption of North Korean citizens’ property.
However, the direction and enforcement of North Korea’s current foreign currency policy have been quite radical and forceful, prompting strong resistance from North Koreans.
“Many people are complaining that the state is trying to pick people’s pockets because the government’s foreign currency reserves are running low,” the source said. “However, we’ll have to see [what impact] this new order will have in the future.”
If the backlash continues, the North Korean state’s past failures to properly implement monetary policy may repeat themselves.
As recently as 2014, the North Korean authorities gave a similar order to ban the use of foreign currency and tried to force people to trade their foreign bills for KPW. However, enforcement of the policy ultimately fizzled out due to resistance and low participation from North Korean citizens.
The source explained that the North Korean authorities aimed to ensure through this recent order that people would not be able to use foreign currency in everyday transactions.
“Based on the order, individual consumers will not be able to use foreign currency in markets or stores,” the source said. “It appears that the use of foreign currency will be restricted to trading agencies, currency exchange firms, and stores where foreign currency is allowed.”
With the exception of trade – where the use of foreign currency is a necessity – the authorities are essentially pushing North Koreans to deposit all of their foreign currency into banks to promote the use of the KPW.
However, many North Koreans have a strong distrust of the government and institutional finance, which makes it difficult to ascertain whether the authorities will be able to implement this new order as planned.
*Translated by S & J