Daily NK sources report that North Korea is experiencing a lack of foreign currency as the country continues to be impacted by international sanctions and a soon-to-be implemented ban on its laborers working abroad.
Sources report that sanctions have reduced the flow of foreign currency into and out of the country, while the amount in circulation has further fallen because residents are hoarding it. While foreign currency is still being used to pay for major transactions, residents are increasingly using local currency to pay for daily items in the local markets.
“North Koreans are using local currency more often to buy things at the market. They’d prefer Chinese yuan or US dollars, but there’s just not enough of it in circulation to use,” a source in South Pyongan Province told Daily NK.
“There are concerns that the situation could lead to an increase in counterfeit bills circulating in the country.”
“International sanctions have definitely led to a fall in circulating foreign currency,” added a North Hamgyong Province-based merchant in his 40s. “The authorities implement measures to entice people to use foreign currency at particular shops and restaurants, or demand that the wealthy make donations to the regime’s loyalty fund, but there’s no avoiding the fact that the circulation of foreign currency has fallen compared to a couple of years ago.”
“There are rumors that the Arduous March [widespread famine of the mid-1990s] is returning, so people are trying to save up and not spend anymore,” he said, adding that broader forces are at play.
Despite the developments, the exchange rate remains relatively stable. Generally, a fall in foreign currency in the market would lead to an increase in the value of foreign bills and a rise in the exchange rate. But the exchange rate between the US dollar and North Korean won has fluctuated only slightly at 1 USD to 8,000 North Korean won, while the exchange rate between the Chinese yuan and North Korean won has remained at 1:1200.
However, if there is an increase in the use of foreign currency in the markets while the overall circulation of foreign bills continues to fall, it could lead to a significant impact on exchange rates.
According to Lim Soo Ho , a senior research fellow at the Institute for National Security Strategy (INSS), there has been so little exchange between the North Korean won and the US dollar that the effect has been negligible. However, he says, if dollars continue to be a rarity and their value continues to rise, this will affect their exchange rate.
Foreign currency continues to be used in major transactions occurring in the country. “Small-scale transactions like those in the markets for a couple of kilos of rice or meat involve North Korean currency, but bigger transactions of 10,000 USD or more tend to involve US dollars or Chinese yuan,” said the North Hamgyong-based source.
Ten thousand USD equals around 8 million North Korean won. The largest bill in circulation in North Korea is the 5,000 won note, meaning that 16,000 bills would be needed to cover a transaction worth 10,000 USD.
Sources also report that North Koreans still prefer foreign currency.
“People frequently use North Korean won to buy goods at the market, but that doesn’t mean that they don’t want to have foreign currency,” a separate source in South Pyongan Province reported.
“The increasing use of [debit] cards has led to a rise in usage of North Korean won in the market, but North Koreans don’t really have much faith in the local currency. They’d rather use foreign currency and farmers prefer it too.”
“People generally use North Korean won to pay for things at the market, but they try to get foreign currency on purchases more than 10 USD,” another merchant in North Hamgyong Province told Daily NK. The merchant added that shops give consumers discounts if they use USD.
“During the foreign currency reform of 2009, the authorities more or less stole the money people had saved up over a long time,” the merchant continued. “The next year, the government said that individuals could no longer use foreign currency and allowed them to exchange all the foreign currency people had at the banks for local currency. Soon after, however, the value of foreign currency spiked and individuals began buying and selling foreign currency in secret.”
After this series of events, she said, people began to mistrust the authorities.
North Koreans generally avoid putting their money into banks run by the authorities and instead store it in their homes, the merchant said.
“Nobody puts their money in a bank because nobody trusts the state,” she said. “After the currency reform, many people avoided using North Korean won. They will continue to distrust local currency in the future.”