North Korean commodity prices soar in some regions as exchange rates continue to fall

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Commodity prices in parts of North Korea are skyrocketing as the country’s exchange rates continue to fall. North Korean leader Kim Jong Un said at a recent Central Committee plenary session that North Korea’s economy had improved “overall” in the first half of the year, but reports Daily NK sources in the country suggest that all is not well in the economy.

A Daily NK investigation found that the KPW-USD exchange rate in Pyongyang was 4,900 KPW to the dollar on June 16. This is an 18.2% decrease from the exchange rate of KPW 5,990 per dollar on June 8.

Exchange rates are also plummeting in other major North Korean cities including Sinuiju (5,000 KPW per dollar) and Hyesan (4,850 KPW per dollar) as of June 16. Exchange rates in these cities fell 15% or more from June 8.

The KPW-RMB exchange rate is also declining. The Daily NK found that on June 16, Pyongyang’s KPW-RMB exchange rate was KPW 560 against RMB, Sinuiju and Hyesan registering KPW 555 and RMB 558 against RMB respectively. Again, exchange rates in these cities are down 15-19% from June 8.

In total, North Korea’s KPW-USD and KPW-RMB exchange rates fell 15-20% in the space of about a week.

That being said, the North Korean authorities do not appear to have put in place any specific measures that would impact the country’s exchange rates.

Several Daily NK sources in the country have confirmed that authorities have not tried to control popular use of the dollar and yuan, nor have they demanded the use of the North Korean won in stores.

North Korean merchants sell goods on the sidelines of a market in Sunchon, South Pyongan province, in October 2018. / Image: Daily NK

North Korean organizations and individuals, who previously waited for the restart of Sino-Korean trade, are selling off their dollars and yuan. This development has a major impact on the fall in exchange rates.

North Korean government agencies and individuals who have received news waku (trade certificates) last month bought currencies in the belief that cross-border trade would soon restart. The North Korean authorities, however, continue to restrict trade, rendering their foreign exchange reserves useless. They are now selling the foreign currency they have in their possession.

“The [North Korean] authorities may have implemented policies to prevent the use of foreign currency or given a signal to individuals and [trade-related] agencies that it is better to sell their foreign exchange reserves than to keep them, “Kim Byung-yeon, professor in the Department of Economics at Seoul National University, told Daily NK yesterday.

In fact, the North Korean authorities issued an order on June 3 saying that commercial agencies could not participate in business activities unless they obtained permission from the Workers’ Party. Authorities have also said that if a trade agency breaks this rule and imports or exports goods, it will be considered to have “smuggled”.

While authorities are still delaying restarting cross-border trade, people who have borrowed funds for business purposes appear to be “draining” their foreign currency reserves to avoid financial losses which could increase as they wait.

On the other hand, members of the donju, North Korea’s affluent entrepreneurial class and senior executives who already have considerable capital, see falling exchange rates as a good time to buy foreign currencies. They make an effort to buy what they can.

These people believe that the current situation is the perfect time to accumulate more foreign exchange believing that 1) trade will restart at some point, even if the border remains closed for the foreseeable future; and 2) that exchange rates will inevitably continue to rise.

Most people working in North Korea’s commercial sector sell their foreign currency reserves, but some of the country’s elite buy foreign currency. This suggests that – rather than exchange rates collapsing completely – the current exchange rate situation may very well continue as it is, or that there will be a slight hike in exchange rates.

The North Korean economy, however, faces an unpredictable and volatile situation as exchange rates fall despite lackluster economic growth and because commodity prices soar as exchange rates collapse.

Street market in Hyesan, dollar rate for rice sellers in Ryanggang province
In this undated photograph, North Koreans are seen peddling goods in a street market in Hyesan, Yanggang province. / Image: Daily NK

Maize and rice prices in some of the country’s major cities, including Pyongyang, have plummeted after local residents received government rations. However, Daily NK confirmed that the price of a kilogram of rice stands at over 10,000 KPW in cities near the Sino-North Korean border and in the interior of the country.

According to a Daily NK source, a kilogram of rice in Musan and Yonsa, two regions of North Hamgyong Province, sold for KPW 15,000 on June 20. insufficient stock to sell, so sellers would set prices at their own discretion.

“Falling exchange rates, coupled with soaring commodity prices in some markets, suggest signs of market chaos,” said Kim, a professor at Seoul National University. “It appears that the markets are unable to encourage transactions that narrow the spread [in prices] among [different] Regions [of the country]. “

Kim added that since 2010, the “engine” of the North Korean economy has been trade and markets, but that the North Korean authorities “prevent markets from performing their function properly by delaying the restart of trade under the pretext. of [stopping] COVID-19[FEMININE”Deplusilanotéque«lesautoritéspourraientstabiliserlesprixartificiellementendistribuantdesrationsàdesendroitsspécifiquesmaisilestfortprobableque[this] could gradually increase the regional gap [in prices]Which makes it a less than desirable option for the government.



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