According to sources from within the DPRK, Pyongyang has issued an order to block the use of foreign currencies and to severely punish violators. This order specifically targets the demands for US dollar and Chinese renminbi, two most popular foreign currencies used for purchases in North Korea. Sure to be catastrophic and impossible to fully implement, the government rationale has been that it was the will of its late leader Kim Jong-il.
I noted in my last article that Pyongyang's primary objective for its year of "power and prosperity" will be geared towards curbing rampant food prices and bringing inflation under control. The most recent measure to insulate the nascent domestic consumer market from foreign currencies appears consistent with the desire to fulfill the above mentioned goals.
Pyongyang is still reeling from the devastating currency reform in 2009 which nearly wiped out the savings of everyday North Koreans. In order to revitalize the people's trust in the central bank, interest rates were raised and access to savings was eased. However, the sudden influx of cash into the capital-starved system seems to have led to inflation and people are once again abandoning the North Korean won for more reliable currencies such as the USD or RMB. At the rate that the North Korean won is devaluing, the most reasonable thing an individual can do is to convert cash holdings to stable foreign currencies.
The state is clearly worried about its increasing inability to manage the domestic market. After all, the issuing of money constitutes an enormously powerful mechanism of control. Accordingly, the recent order apparently noted that the punishment for illegal use of foreign currency should be more severe than the repercussions for drug smuggling.
More importantly, how the government resolves this crisis will dictate whether North Koreans will have something on the dinner table tomorrow. The price of rice and corn has increased dramatically in the last few months and many North Koreans are unable to afford their already meager meals. Stopping the use of foreign currencies may be intended to increase the value of the North Korean won and make goods more affordable - it could also turn out to be another major blow to consumers and merchants alike.
More on this to come...