North Korea's Currency Woes: A Deepening Crisis

The North Korean won has been in a free fall against foreign currencies, with the exchange rate reaching record highs in recent weeks. Despite the government's efforts to restrict private currency exchange, the won continues to weaken, reflecting the country's economic struggles and the growing demand for foreign currency. This article delves into the complexities of North Korea's currency crisis and its far-reaching implications.

Navigating the Turbulent Waters of North Korea's Currency Landscape

The Weakening Won: A Symptom of Economic Distress

The North Korean won has been on a downward spiral, with the exchange rate against the U.S. dollar reaching a record high of 16,500 won on September 2. While the rate has since fallen slightly to 16,100 won as of September 15, the won remains significantly weaker than its pre-pandemic levels, when it hovered in the 8,000-8,999 won range.This dramatic decline in the won's value is a reflection of the country's economic challenges, exacerbated by the COVID-19 pandemic and the subsequent border closures. With trade severely restricted, the demand for foreign currency has plummeted, leading to a sharp drop in the won's exchange rate.

The Government's Futile Attempts to Curb Private Currency Exchange

In a bid to regain control over the currency market, the North Korean government has deployed enforcement forces to crack down on private currency exchange. The goal is to confiscate privately held dollars and promote a transition to state-monitored financial transactions.However, these efforts appear to be backfiring, as the exchange rate continues to soar. The large-scale money changers who control the market exchange rates are reportedly in league with high-ranking law enforcement officials, making them virtually untouchable. As a result, the government's crackdown only succeeds in catching the "small fry," further driving up the exchange rates.

The Dual Challenges of Demand and Supply

The North Korean government's "20×10 regional development policy," which requires the import of large quantities of raw materials, parts, and machinery, has contributed to the growing demand for foreign currency. This, coupled with the public's desire to hold onto dollars as a hedge against the weakening won, has fueled the surge in exchange rates.At the same time, the country's border closures have severely restricted the supply of foreign currency, as trade and other economic activities have been severely curtailed. This imbalance between supply and demand has further exacerbated the won's decline.

The Yuan's Rise: A Shift in North Korea's Currency Landscape

The North Korean won's woes have not been limited to the U.S. dollar. The exchange rate between the won and the Chinese yuan has also been on the rise, though not as steeply as the won-dollar rate.The Daily NK's survey shows that one yuan was traded for 1,900 won in Pyongyang on September 15, a 52% increase from the rate of 1,250 won in early January. This shift reflects the growing importance of the yuan in North Korea's currency landscape, as the country's economic ties with China deepen.

The Disconnect Between Exchange Rates and Domestic Prices

Despite the soaring exchange rates, the prices of key commodities like rice and corn in North Korean markets have remained relatively stable, with only moderate increases compared to the beginning of the year.This disconnect suggests that the market exchange rates do not directly influence the prices of these essential goods. Instead, other factors, such as government price controls and the availability of domestic supplies, appear to play a more significant role in determining domestic prices.

The Implications of North Korea's Currency Crisis

The North Korean won's precipitous decline has far-reaching implications for the country's economy and its citizens. The weakening currency erodes the purchasing power of the North Korean people, making it increasingly difficult for them to afford basic necessities.Moreover, the government's inability to effectively control the currency market undermines its authority and credibility. The fact that the large-scale money changers are effectively immune to government crackdowns highlights the limitations of the regime's control over the economy.As the currency crisis deepens, the North Korean government may be forced to consider more drastic measures, such as further tightening of capital controls or even a currency reform. However, these actions are unlikely to provide a lasting solution, as long as the underlying economic challenges remain unaddressed.In the end, the North Korean currency crisis is a symptom of a much larger problem – the country's struggling economy and its inability to adapt to the changing global landscape. Resolving this crisis will require a comprehensive approach that addresses the root causes of North Korea's economic woes, a challenge that the regime has so far been unwilling or unable to tackle.