The US dollar and Chinese renminbi have plummeted against the North Korean won once again. Despite the fact North Korean authorities recently issued new waku (trade certificates), North Korean trade-related institutions and individuals rushed to dump their foreign currency when the government unveiled new trade control measures.
Daily NK determined through several sources that as of Tuesday morning, the KPW-RMB exchange rate in Pyongyang was KPW 660 to the yuan, a 32% drop from the rate of KPW 965 on June 2.
The situation was similar in Sinuiju. The KPW-RMB rate in the northwestern city was KPW 680 to the yuan on Tuesday, likewise representing a 30% drop.
The KPW-USD rate has dropped less dramatically, but the dollar is also clearly weakening across the country.
The KPW-USD rate on Tuesday was KPW 5,990 in Pyongyang and KPW 5,950 in Sinuiju, dropping a respective 16% and 17% from six days ago.
Both the dollar and the renminbi have experienced their deepest drops in the shortest time since North Korea’s 2009 currency reform.
North Korean foreign exchange rates fell significantly in the fourth quarter of last year, too. However, the drop took place continuously over the course of nearly two months starting just before Party Foundation Day on Oct. 10, so the fall was more gradual than the latest one.
In fact, the dollar and renminbi had been continuously climbing after authorities announced they were accepting new waku applications in April.
The KPW-USD rate broke past KPW 7,000 on May 18, just before the new waku were issued. The renminbi was also going beyond KPW 1,000.
Daily NK has found that the exchange rates – which had been climbing continuously on the back of expectations surrounding the reopening of trade, and the issuance of new waku – suddenly collapsed because of new trade controls recently enacted by the North Korean authorities.
According to a high-ranking source, the Central Committee issued an order on June 3 telling recipients of new waku that their certificates did not mean they could participate in trade “right away.” If they do participate in trade without Workers’ Party approval, warned the order, it would be regarded as smuggling and subject to severe punishment.
The order was reportedly conveyed to relevant organizations through the Ministry of External Economic Relations’ Saturday lecture.
Central Committee orders are rarely passed down during Saturday lectures. However, it seems North Korean authorities shared the news because there is intense interest focused on the restart of Sino-North Korean trade even within North Korea.
According to another source, institutions and traders who had been preparing for renewed trade have been rushing to dump their dollars and renminbi ever since the Central Committee order was handed down.
In short, institutions and individuals that – in expectation that cash liquidity would expand with the restart of trade – borrowed money at high interest to purchase foreign exchange are dumping their foreign exchange before they take even bigger losses.
Meanwhile, with exchange rates falling and rumors spreading nationwide that the border will remain closed, market commodity prices appear to be climbing.
Rice cost KPW 5,000 a kilogram in Pyongyang on Tuesday, 22% more than it did six days ago. In Hyesan, Yanggang Province, and Onsong, North Hamgyong Province, a kilogram of rice cost KPW 4,900, a rise of more than 10%.
Corn prices have climbed close to 20% across all regions where data exists. In the case of Pyongyang, corn cost KPW 3,000 a kilogram, the most it has cost since after the 2009 currency reform.
The spike appears to be attributable to both the usual rise in grain prices from late spring to summer due to insufficient supply, as well as to spreading rumors that the border will remain closed.
The rise of corn and rice prices has led to increasing concern among ordinary North Koreans. A Pyongyang-based source told Daily NK that many people are complaining about climbing rice prices. Locals express fear that the price “could reach KPW 10,000” and that they are witnessing a repeat of the “Arduous March,” the devastating famine of the 1990s.
The rise in discontent among Pyongyang residents about basic aspects of their lives could impact the authorities’ ability to govern. It remains unclear whether the authorities will implement measures to stabilize market commodity prices.