North Korea tries again to rein in unsanctioned use of foreign currency

Flag of the DPRK and U.S. dollars under a magnifying glass. (Fotogrin | Courtesy of Shutterstock, Inc.)

North Korea issued a fresh warning this month in what looks like its losing battle to crack down on private economic activity.

Authorities on April 5th declared that the distribution of goods and unapproved transactions in foreign currency were illegal and would be punished.

The proclamation has been posted at train stations, bus stops, shops, jangmadang markets, roadsides, and even in villages.

This move suggests that earlier efforts to stamp out private trading with foreign currency have so far been unsuccessful, raising the possibility that the state may have to eventually surrender. The genie released in the 1990s after the end of rationing is refusing to go back into the bottle.

The target is not simply rogue traders, but rather established entities where people make money on the side. 

The seven-point declaration says that, despite recent efforts to stabilize the exchange rate, institutions, businesses, organizations, and factories continue to engage in clandestine distribution of goods using foreign currency. 

This behavior clouds public sentiment and undermines development plans and the wellbeing of the people, it says.

The police will consider it a challenge to the country’s “sacred law” and will punish offenders. 

“Never engage in the act of distributing goods or engaging in foreign currency transactions outside the national control,” the posters say. It warns of uncompromising crackdowns.

This language is creating an atmosphere of fear.

It brings to mind the introduction in 2021 of 50,000 won and 5,000 won donpyo vouchers, apparently due to shortage of proper paper and ink for banknotes. Introduced during the pandemic, the vouchers were just a temporary measure and could be used as regular cash, authorities said. However, people were cautious about using them, fearing they might suddenly be declared no longer valid. 

This mistrust was rooted in the 2009 currency reform when people were left holding worthless old banknotes.

Given the mistrust, analysts say the latest effort to combat illegal trading and curb the use of foreign currency is likely to prove ineffective. 

They say it is inevitable that clandestine foreign currency transactions will continue. 
That is because even official trading companies need to sell goods on the side to earn sufficient foreign currency to stay in business. When these institutions earn foreign currency through legal imports, the state confiscates it. They then take some of their goods to markets to secure foreign currency needed to trade overseas.

Era Seo

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