The Currency in North Korea: A Surprising History
As the most isolated country in the world, North Korea has a unique economic system with its own set of rules, dos and don’ts. One of the most fascinating elements to examine is its currency – the North Korean Won (KPW).
To understand this currency, it’s important to take a look at the country’s tumultuous past. After the Korean War in 1953, North Korea withdrew from the international banking system and adopted its own system of government- issued currency. That is to say, the North Korean won replaced the South Korean won, and has remained North Korea’s official currency since.
Despite its roots in international banking, the system of the North Korean won is surprisingly simple – it is non-convertible. This means that citizens cannot trade their money for any other currency, including the US dollar or the euro. This also prevents citizens from travelling to any other country without first exchanging their currency for the expected money.
So what are the consequences of this rather unique economic system? Primarily, it has resulted in a sharp devaluation of the currency, making it worth less than a mere 1/1000 of a US dollar. Interestingly, the won has become easier to obtain since the economic crisis in the mid-1990s, giving rise to a monetary black market where currency can be exchanged at a premium rate.
Furthermore, because North Korea is largely off-limits to international banking, the actual status of North Korea’s economy and its printed money is largely unknown, with estimates ranging widely. It’s speculated that the country is suffering from severe inflation as a result of heavily printed bills, and it possibly has the smallest bank notes of any country in the world. This means that citizens may need to carry stacks of physical money to conduct relatively small transactions.
Regardless of its checkered past, North Korea still uses its currency in trading, although it is often frowned upon by the international community. In 2014 for instance, the United Nations imposed economic sanctions on North Korea and urged countries to refrain from using its currency in international trade. Ultimately, the future of the North Korean won is still quite uncertain as the country’s isolation and sanctions continue to affect its global usage.
Hyperinflation in North Korea
Hyperinflation is an economic problem that the global community is keenly aware of, with Venezuela suffering from its disastrous effects in recent years. Similarly, North Korea has suffered from massive bouts of inflation, with a 2016 study suggesting that the cost of living in Pyongyang (the capital of North Korea) has risen fourfold in the past two years. According to experts, the North Korean Won is constantly being printed in hopes of keeping up with the country’s debilitated economy.
Hence, to curb the soaring inflation levels, the North Korean government has had to impose strict price controls. In 2009, North Korea created a number of special economic zones to further its export economy, while this move did help to control prices, its effects on the North Korean Won were short-lived.
Ultimately, hyperinflation is nothing more than a symptom of an ailing economy. Financial experts have long argued that North Korea’s economic structure has made it susceptible to a number of economic problems, such as its exchange rate fluctuations, budget deficits, and dwindling credit. These economic issues are further reinforced by the country’s poor relations with other countries, making it increasingly difficult for authorities to obtain foreign investment.
Currently, policymakers have been considering measures such as liberalising the exchange rate, increasing foreign investment and trade, and freeing up markets. Of course, such plans are easier said than done, though economic observers are in agreement that much needs to be done to combat North Korea’s staggering inflation.
North Korea and Cryptocurrency
In recent years, there has been much speculation that North Korea has been turning to cryptocurrency to bypass international trade sanctions. However, while the country has been suspected of attempting to mine and launder cryptocurrencies, such claims have largely been unsubstantiated.
Nonetheless, cryptocurrency and blockchain technology could very well be used to address North Korea’s economic woes. While the North Korean won is non-convertible, using a cryptography-based digital currency would make it truly democratic, allowing citizens to move, spend, and own their funds freely.
Since North Korean citizens are largely cut off from the banking system, cryptocurrencies could potentially provide them with a way to access the global financial system. In this way, they would be able to protect their assets and store them digitally, and these assets would be beyond the reach of parochial governments.
At the same time, North Korea may develop its own digital currency as an alternative to the North Korean won, taking cue from Venezuela which has just launched its own digital currency called the “Petro”. Such a move, if successful, could boost international trade by allowing North Korea to trade with countries without the need for conversion, and could even enable North Korea to attract foreign investments from interested parties.
However, much remains to be seen, as North Korea has yet to officially embrace cryptocurrency or blockchain technology, emphasizing the importance of a stable, internationally accepted currency.
North Korea’s Strangely Steady Currency
Despite the economic sanctions and hyperinflation woes, the North Korean won has managed to retain a strong value. One possible explanation for this is that North Korea’s currency has maintained a certain level of stability, even while its economy has weakened overall. According to the Bank of Korea, the won was worth only 100 to the US dollar in 1994, but its has since stabilised at around 130-140.
Furthermore, North Korea has been actively taking steps to ensure that its currency remains relatively stable. In 2010, the North Korean government launched a campaign to replace its existing bank notes with new more powerful bank notes which were supposed to curb counterfeiting. Then in 2016, international experts speculated that North Korea has been artificially boosting demand for its Won by withholding salaries from citizens so that salaries have to be paid in the form of wages.
This means that the North Korean government may be using its own tactics to keep its currency roadworthy. Furthermore, its citizens may also be using the currency to exchange goods and services, as the government has cracked down on the production of counterfeit goods.
In any case, the North Korean won remains an uncertain currency, ultimately relying on the mystery that shrouds North Korea. As the international community remains unsure of this country’s future, it is unlikely that the North Korean won will ever be accepted in international markets at its current rate.
Crypto Trading in North Korea
Apart from its domestic currency, North Korea has also been linked to crypto trading activities. In 2017, reports emerged of North Korea’s alleged attempts to outwit international sanctions by launching cyber-attacks on bitcoin mining pools, with the proceeds being used to fund its struggling economy.
It is believed that North Korea began mining in 2015 when the value of bitcoin was around $200. Subsequently, this value surged to a peak of nearly $20,000, likely providing North Korea with a massive payday. Additionally, the country may have adopted crypto trading as a means to acquire foreign currency, as its own won is largely non-convertible.
However, upon further examination, this theory has turned out to be largely unfounded. In 2019, the United Nations affirmed that there is no concrete evidence to suggest that North Korea is using cryptocurrency as a tool to evade international sanctions. Additionally, the lack of internet in North Korea and the regulatory uncertainty has made it difficult for the country to invest in cryptocurrency.
Moreover, North Korea has actively blocked the usage of cryptocurrency and blockchain technology in the country, citing its incompatibility with the North Korean ideology. In fact, according to the North Korean government, these technologies threaten the country’s political and social system, hence they will never be recognised as legal tender.
Conclusion
Under its unchanging official currency, North Korea remains a cash-dependent society. The North Korean won is non-convertible and weak against comparison to the US dollar, making it impractical for international trading. In recent years, North Korea has made moves to protect the won’s value and curb rampant counterfeiting, in addition to allegedly attempting to mine cryptocurrencies to evade international sanctions.
As a result of the various economic issues and international sanctions, the future of the North Korean Won is unclear. Ultimately, it remains to be seen what role the won will play in the country’s future economy, albeit the currency is likely to remain as the official means of transaction for quite some time.
