The Inexorably Rising RMB Exchange

The value of the North Korean currency against the Chinese Yuan has declined markedly since the beginning of this year, information from inside sources has revealed.

By the beginning of June, 100RMB was trading in Musan, North Hamkyung Province for 80,000 North Korean Won, marking a 25% reduction in value since January, when 100RMB was worth around 60,000 Won.

A source from the area told Daily NK on the 25th, “The exchange rate changes even over the course of a day, but yesterday it was in the 800’s [1RMB=800 North Korean Won]. People are saying that our money is turning to scrap paper.”

“Because of this, prices in the jangmadang [market] are following suit,” the source went on. “However, supplies are still massively insufficient, and everything is gone from stalls by the end of the day.”

According to statistics published regularly by Daily NK, at this time last year 100RMB was trading for between 43,000 and 45,000 North Korean Won (regional variations apply). This means that the price has now almost doubled in just 12 months.

Looking at the rises in more detail, by October 2011 the price of 100RMB had reached 50,000 Won, mid-November saw it hit 58,000 Won, and by mid December it had reached 60,000 Won. Fast forwarding to April 2012 and it was 67,000 Won, and by mid May 74,000 Won.

It is never easy to pinpoint the short-term cause of North Korean exchange rate rises, because Pyongyang does not release accurate economic statistics of any kind. However, one thing that is likely to be having an effect is the cost of importing fertilizer. Almost all artificial fertilizer in North Korea comes from Chinese companies, and they have to be paid in RMB. As a result, demand for the Chinese currency from import-export and foreign currency earning companies has been consistently high.

It is true that this has been an annual problem since North Korea’s fertilizer production industry collapsed along with the rest of the country’s industrial infrastructure in the mid 1990s. However, sources corroborate the idea that with Kim Jong Eun positioning himself as a ruler who is going to end hunger in North Korea, and with public opinion of his rule hinging in large part on his regime’s ability to do so, the emphasis on importing fertilizer is currently greater than normal.

Meanwhile, fortunately the number of people who suffer the slings and arrows of rising and falling exchange rates is declining. Although those people who either have no access to trade (such as low-ranking soldiers and munitions industry employees), or those who trade day-to-day just to survive, are still at the mercy of rising rice prices in local currency, the growing number of people who can hold their assets in foreign currency is able to avoid the risk.

The complete lack of consistent economic policy symbolized by the last currency redenomination of November 30th 2009 only helps to exacerbate a post-90s preference for holding foreign currency, something which is largely done in RMB (along with US Dollars). As a result, the North Korean authorities now find it nearly impossible to control the value of their own currency on a day-to-day basis, and are reduced to watching on as exchange rates fluctuate, while occasionally employing the sledgehammer (a redenomination) to give the impression of having some form of economic leverage.

Notably, almost the only products in the jangmadang that are now traded in local currency are food and a few other very low-priced items; everything else, from clothing to electronics, is bought and sold in foreign currency.

Understandably, historical precedent has also left the ordinary North Korean people constantly on guard for the next time the authorities might decide to redenominate the North Korean Won and wipe out the value of local currency holdings. As such, there is absolutely no chance that anyone who is in a position to do so will stop seeking out RMB and US Dollars as a way to reduce their exposure to this risk, no matter what official policy is announced to try and wrestle back control.