Money (That's What I Want)

January 10, 2012 6:45 AM

In the two years since the November 2009 currency reform, North Korea has experienced high and sustained inflation.  One implication is the ever-widening gap between the official and black market exchange rates, and understandable reluctance of foreign exchange earners to convert their revenues into North Korean won at the official rate. Prior to the death of Kim Jong-il, the Daily NK published a somewhat confusing piece that claimed that the ChosunTrade Bank was offering the carrot of better-than-official rates to obtain foreign currency deposits, while the regime was also brandishing the stick of special inspections of units suspected of hoarding foreign exchange. One response by enterprise managers has been to stash foreign exchange earnings into local trade banks where bank officials are bribed to disguise the magnitude of the deposits and to maintain access to foreign exchange loans. The reputed consensus among market participants was that deposits in banks controlled by the central government were subject to seizure in the run-up to the Kim Il-sung centenary.

Uncertainty following the death of Kim Jong-il seems to have intensified these contradictions.  IFES reports that “the DPRK government is forcing businesses and trading companies to deposit all foreign currency earned in the trade bank.  However, most companies prefer to hold on to their foreign reserves to avoid complex deposit and withdrawal processes.” In other words, they don’t trust the banks so they are stuffing the dollars and yuan into their mattresses.  IFES continues, “They also seem to be using private money brokers to exchange money.” Translation: for what its worth, the North Korean banking system is being drained of deposits. “Recognizing this, North Korean authorities have been cracking down on such illegal “private money exchangers” every year.”  And with whom are these capitalist parasites affiliated?  If you answered “the security services” you may have a future in business.

Not to worry, according to Yonhap, help is on the way.  The South Korean news agency reports that North Korea plans to issue gold and silver coins in honor of Kim Jong-il. Yonhap quotes North Korea's KCNA to the effect that the commemorative coins are to celebrate Dear Leader’s “immortal achievements" of making North Korea an invincible military power with nuclear weapons that no enemy can dare touch under his "songun" or military-first leadership, and to keep such feats "shining through generations.” According to the KCNA, the gold coins are to be minted 35 millimeters in diameter, 2mm thick, while silver ones will be 40mm in diameter and 3mm thick. No information on fineness was reported.

Setting aside the fact that such coins may never be minted, it is amusing to contemplate the possibility that such coins could circulate in North Korea.  Presumably their value would be established by their gold weight at international prices and as such would act both as a hedge against inflation as well as an indicator of its virulence.  As a North Korean, one would not have to possess the portfolio preferences of Ron Paul to see the attraction of acquiring some of the coins.

As for the rest of us, South Africa’s Krugerrands were famously subject to international boycotts during the apartheid era, and given existing UN sanctions on North Korea, it may be a while before any “Golden Kims” reach our shores.

Comments

Joshua

The minting of Kim Jong Il gold coins isn't a new development, and probably does not suggest a significant change in its economic policy. You can see a photograph of those coins at this 2007 post, so they've been around for at least 5 years. The announcement of these new coins, therefore, doesn't necessarily signal a big new change in economic policy. North Korea needs that gold to be able to buy luxuries and other priorities on the international markets despite sanctions. Gold production was key to keeping the regime alive when the BDA sanctions bit the hardest in 2006. That year, the regime survived by selling gold on the Bangkok and London markets until it could talk Chris Hill into effectively lifting Treasury sanctions and UNSCR 1718. I strongly doubt that North Korea is going to divert its gold production - a potential economic lifeline - from foreign exchange to internal circulation.

I always love it when the comparison with South Africa comes up, such as when North Korea was invited to the World Cup in South Africa, with no uncomfortable questions asked by FIFA and few asked by the global Human Rights Industry. There were, of course, very compelling moral and policy reasons to use economic isolation to pressure positive change in South Africa. There is only one way I can explain why those reasons aren't even more compelling in the case of North Korea, which is rank hypocrisy. I lived in South Africa for a few of the last months of apartheid and I'd be the last one to question that that system was cruel and dehumanizing to its majority African population (let's not forget its other substantial non-white minorities, either). I witnessed the effect of international sanctions, including the negative economic ones and the very positive and hopeful political-social-diplomatic ones. But I don't think South Africa's cruelty can be compared, objectively speaking, to abuses on this scale. And in the specific case of North Korean gold mines, we know that at least three North Korean gold mines also happen to be political prison camps.

Joshua

Sorry, for some reason, I didn't paste in complete links. Here's the post with the image of the gold KJI coin (dated 2004, so it's actually 7+ years). Here's the second link, corrected.

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Marcus Noland Senior Research Staff

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