North Korea has banned the use of foreign currency in local markets to force people to use the untrusted domestic won in an attempt to acquire much needed U.S. dollars and Chinese yuan from the people, sources in the country told RFA.
If the ban sticks, it would be a transformational change to the country's monetary system, as most commerce is done in foreign currency, using U.S. dollars, Euros or Chinese yuan, due to lack of faith in the won. The won has an official and a black market exchange rate against those foreign currencies, with the government saying the domestic currency is worth almost 10 times more than it can actually fetch in local markets.
Sources in North Korea told RFA’s Korean service that when the won-only measure was announced, people began to express their anger and confusion.
“The Central Committee [of the Korean Workers’ Party] made the order in late April, banning all dollar transactions in all commercial networks and marketplaces from May, requiring that we use only North Korean currency,” a resident of South Pyongan province, who requested anonymity to speak freely, told RFA.
“When the order was given, the residents responded by asking how they could make any transaction using North Korean money. [They said the measure] is absurd,” said the source.
“These days, even if you try to buy a simple piece of clothing at the market place, you have to pay in dollars. So who would follow the order to ban the use of foreign currency?” asked the source.
According to the source, the government announced that foreign currency could be exchanged at any state-run bank for the market rate.
“But the residents are laughing at the authorities’ announcement, saying they wouldn’t even believe the government if it told them meju is made of soybeans,” the source said, referring to dried fermented soybeans used in Korean cuisine.
“This measure is a last resort for authorities as they try to overcome a foreign currency shortage by forcing the people to sell their foreign currency by banning its use,” the source said, adding that the shortage was brought on because the government-backed trade activities that generate foreign cash have been suspended by COVID-19.
The source said the measure has similarities to 2009, when the government revalued the North Korean won.
“[They] declared a ban on the use of foreign currency in 2009 and forcibly took away all the foreign currency held by residents, and now they are doing the same thing again,” the source said.
“The residents are protesting against the plan, saying they will not be deceived anymore, so chances are high that this measure will also be scrapped,” the source said.
On the same day, an administrative agency official source in North Pyongan Province, who also requested anonymity, told RFA, “From [May 4], the authorities have ordered us not to trade in foreign currency for any payments for factories and businesses.”
“However, asking the state-run factories to trade only in North Korean money is simply not realistic because they always buy raw materials using foreign currency in the markets,” the second source said.
“It’s like telling them not to operate the factory,” the second source added.
While in years past the people were more readily on board with the government’s monetary policies, the second source said that they are reluctant this time around
“So far, the authorities have been trying to enforce the ban, [hoping to] retrieve foreign currency from residents, but their efforts have repeatedly hit a wall due to resistance and uncooperative behavior from both ordinary residents and officials,” the second source said.
“The ban on the use of foreign currency has not been effective, resulting in only a drop in the status of the authorities, [and] the dollar and yuan are still in circulation in the marketplaces.”
The second source said that the black market exchange for the North Korean won in Sinuiju was 8,050 won to the dollar and 1,230 won to the yuan. On Monday, the official rate stood at about 900 won to the dollar and 127 won to the yuan.
The 2009 North Korean won revaluation, in which the government exchanged one new won per 100 old won had an upper limit of 100,000 won, which at the time was worth about $40. Analysts saw the move as a means to delegitimize accumulated fortunes earned of the then-emerging free-market-like economy, but the measure backfired, encouraging even more widespread use of the dollar.
Reported by Hyemin Son for RFA’s Korean Service. Translated by Leejin Jun. Written in English by Eugene Whong.