Jung Jae-hyun, who fled North Korea in 2014, used US dollars as a store of value and Chinese yuan for everyday purchases before leaving the country. The quality of North Korean banknotes was poor and there were few places where he could use the won, the national currency. The use of foreign currencies, known as “dollarization,” has been tolerated in North Korea, as it helped moderate inflation and stabilise the exchange rate, which in turn allowed Kim Jong-un to establish a stable hold on power. However, the pandemic, years of UN sanctions and tensions with the US have hit North Korea’s economy hard, and Kim is now looking to backtrack on his use of the dollar and yuan to strengthen his grip on power.
North Koreans have low confidence in the government’s economic policies, so many citizens have been resisting attempts by authorities to take away their foreign currency savings. Over the years, the renminbi has become the most preferred currency for savings in areas near the North Korean and Chinese borders, while the dollar is the most saved currency in southern regions. The North Korean won is only used for inexpensive commodities, such as sodas, vegetables and bread sold at the market.
Currency circulation is increasingly controlled by the government, and there are inconsistencies in the enforcement of regulations around foreign currencies. Jeong, a former official in the northern North Korean city of Hyesan, found most of his North Korean won savings became worthless after authorities limited the amount of old banknotes that citizens could exchange for new ones.
There are two exchange rates for the won – the official rate set by the government and a market rate that more closely reflects the actual economic situation in the country. During the pandemic, the won saw a sudden surge in value due to reduced demand for dollars and renminbi. However, experts predict that the circulation of foreign currency is declining and that the government is likely to intervene to control the exchange rate in the market.
Experts say that trying to ban the use of foreign currency by the general public would only cause confusion and disrupt the country’s currency circulation. Kim Jong-un is likely considering whether to fully reopen the border, as a sudden resumption of imports could boost the value of the dollar against the won and raise imported goods prices.