The North Korean won has faced a significant decline in value against major currencies this year. This has led to a notable shift in marketplace transactions, with an increasing number of citizens turning to foreign currencies. Daily NK has been in touch with multiple sources within North Korea, shedding light on this developing situation. Unraveling the Impact of North Korean Won's Depreciation
Exchange Rate Volatility and Its Consequences
This year has witnessed a staggering loss of half the value of the North Korean won against the dollar and yuan. Such constant fluctuations have had a profound impact on daily life and economic activities. As exchange rates jump several hundred won at a time, vendors have started to prefer transactions in foreign currencies. For instance, in Ryanggang province, when one yuan was selling for 1,800 won, vendors might charge 1,900 won per yuan to avoid losses. This practice of applying a higher exchange rate for won-denominated transactions has become common. It shows how the rapid depreciation of the local currency is forcing market vendors to seek more stable forms of payment.Moreover, before the pandemic, the border was relatively open, and smuggling was rampant in areas like Sinuiju and Uiju county in North Pyongan province. Chinese-made items were readily available in the marketplaces, and the usage rates of the dollar and yuan were higher. However, even in rural areas not close to the border, the situation has changed. Now, buying rice and other agricultural products with yuan has become a common occurrence, even in areas where smuggling is not a significant factor. This indicates the widespread acceptance and use of foreign currencies in various parts of North Korea.
The 'Re-dollarization' Phenomenon
During the pandemic, trade restrictions led to a decline in the demand for foreign currency and a de-dollarization of North Korean markets. But this year, with the significant rise in exchange rates, there has been a resurgence of the dollar and yuan in the markets. Merchants are now more inclined to receive dollars or yuan for imported factory goods and Chinese food products. Even purveyors of vegetables and hot meals, who used to accept domestic currency, are now insisting on being paid in yuan and are reluctant to provide change in North Korean won. This shift highlights the changing dynamics of the North Korean economy and the increasing importance of foreign currencies.The North Korean officials responsible for monitoring market activity are finding it increasingly difficult to enforce rules against transactions in dollars or yuan. Given the practicality and convenience of using foreign currencies, vendors are reluctant to accept North Korean won at a loss. As a result, more North Koreans are turning to money changers in the marketplace to convert their local money into foreign currency. This further fuels the demand for foreign currencies and complicates the economic situation.
Economic Implications and State Control
The continuous increase in exchange rates is leading to a higher use of foreign currency, which in turn is boosting its demand within North Korea. Experts predict that this trend may lead to even higher exchange rates in the future. The growing usage of the dollar makes it harder for the North Korean authorities to exercise fiscal policy and control the domestic currency. Attempts to guide or force North Koreans to use the Korean won are likely to be ineffective due to the depreciation of the local currency.However, it is important to note that the economic shock caused by the depreciation of the North Korean won may not be as severe as during the currency reform in 2009. Currently, North Korea is actively working to manage its currency through electronic payment systems and the establishment of more commercial banks. This shows that the government is aware of the challenges and is taking steps to address them. But as more citizens turn to foreign currency, it will become increasingly difficult for the authorities to control the economy.In conclusion, the North Korean won's depreciation and the resulting shift towards foreign currencies have significant implications for the country's economy. It is a complex situation that requires careful monitoring and analysis. Daily NK will continue to provide updates and insights based on its network of sources in North Korea, China, and elsewhere.Please send any comments or questions about this article to
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