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BUSINESS Monday 19 noveMber 2018
A25

North Korea’s stable exchange rates confound economists

By ERIC TALMADGE hotels that deal only in for- limiting traders to a specific said in an email to the AP. of course, is none of that is
Associated Press eign currency. The other, exchange rate bandwidth Brown, now an indepen- sustainable.
PYONGYANG, North Korea more closely watched, is or reducing loans in the lo- dent consultant, believes “Stable money is essential
(AP) — It’s a question that tied to market forces and cal currency to keep its cir- the North is doing what to building a new market
nags at North Korea econ- economy, enhancing pri-
omy watchers: How has vate sector-led productivi-
the country been able to ty and growth and allowing
maintain stable exchange citizens to save and invest
rates — and avert hyper- their own money,” Brown
inflation — despite intense said. “I suspect Kim knows
sanctions, political tensions good, or at least not bad,
and a swelling trade imbal- relations with (President
ance? Donald) Trump and Amer-
In a nutshell, North Korea ica are essential for con-
buys a whole lot more than fidence in the won and is
it sells to China and, be- behaving accordingly. So,
cause of the sanctions, is for now, no ICBM or nucle-
doing hardly any business ar weapon tests, and lots of
with anyone else. Since happy talk.”
no one in their right mind North Korean leaders are
would accept the interna- well aware of the dangers
tionally worthless North Ko- of a volatile currency.
rean currency for any sig- Widespread panic ensued
nificant trade deal, North in 2009 when the gov-
Korea must be burning up ernment decided to ex-
its foreign reserves. And change the old currency
when a country does that, for a new one — at a rate
prices generally start to rise of 100 to 1, erasing person-
— often dangerously so. All al savings in one fell swoop.
of which should be reflect- In this Sept. 12, 2018, file photo, North Korean customers get assistance at a supermarket in Pyong- Kim Jong Un’s father, Kim
ed in its exchange rates. yang, North Korea. Associated Press Jong Il, reportedly had the
So what gives? finance minister executed
Understanding what’s go- for the fiasco.
ing on with the North Kore- is a better reflection of ac- culation low. They also sug- China has been doing for Because of such concerns,
an economy is essential for tual economic conditions. gested there simply might the past 40 years — selling even ordinary people have
negotiators trying to gauge It has stayed mostly within not be enough dollars in off its assets. Because the good reason to want to
how seriously leader Kim a narrow band of around circulation for the market state owns all capital, he keep their savings in dollars
Jong Un is about giving up 8,000 to the U.S. dollar since price to be impacted by said, in the short term it can or Chinese yuan. And while
his nuclear weapons and about 2012-2013. the sentiments of ordinary fund itself and protect the confidence in the local
whether sanctions are ac- As Ri suggested, there are people. Or, perhaps, the exchange rate by selling currency has recovered in
tually what got him to the signs the North Korean government is keeping it or privatizing a good part recent years, it still can’t be
negotiation table, as many economy has been doing artificially stable “by sheer of its property. It could also converted into other cur-
in the U.S. government well under Kim. But there is force — for political rea- be raising money by allow- rencies outside of North
have suggested. Exchange clearly a lot more going on. sons — to present an im- ing officials to charge for Korea and remains ill-suited
rate stability would normal- First off, North Korea’s age of resilience through ordinary activities or skimp- for big transactions.
ly suggest otherwise. But economy has never been sanctions.” ing on salaries while looking As Silberstein and Ward
does it? self-reliant. It has depend- Bill Brown, a former CIA of- the other way as they ac- point out, its biggest de-
“The fact that the rate is ed heavily on exporting ficer and adjunct professor cept bribes to make up the nomination is the 5,000 bill
stable means that the over- goods such as coal, textiles at Georgetown School of difference. The problem, — worth about 60 cents.q
all economy of the country and seafood. Foreign Service, said Ri’s
is stable and it is growing,” “There’s a reason these claims about overall eco-
Ri Ki Song, an economist goods are sanctioned,” nomic stability aren’t with-
with the Economic Institute said Benjamin Katzeff Sil- out merit.
of the North’s Academy of berstein, co-editor of North “But the right question,
Social Sciences, said in a Korean Economy Watch. then, is at what cost,” he
recent interview in Pyong- He added that Kim has
yang with The Associated been trying to boost do-
Press. “Our economy is not mestic production to re-
an economy that relies on duce the country’s reli-
exports. ... Due to the sanc- ance on imports and lift
tions, we are not making consumption of domesti-
a lot of trade or financial cally made goods, which
dealings with other coun- wouldn’t be necessary if
tries, so there will be not so North Korea was economi-
many changes in the ex- cally self-reliant.
change rates.” Silberstein and fellow econ-
The North Korean currency, omy watcher Peter Ward,
called the won, has two in a paper published Thurs-
exchange rates. One is set day by the respected 38
by the government at an North website, argued the
artificially high level and North has several tools to
is used mainly in shops or promote stability, such as