In 2024, North Korea faced a dramatic financial upheaval as the stability of its currency, achieved under Kim Jong Un's leadership, began to falter. After maintaining steady prices and currency value for a decade, the North Korean won plummeted in value, leading to significant economic challenges. This article delves into the causes and consequences of this crisis, exploring the broader implications for North Korea’s economic future.
Unraveling the Won: A Year of Economic Turmoil
The Collapse of Currency Stability
The year 2024 marked a turning point for North Korea's economy, as the once-stable North Korean won experienced a sharp devaluation. Over the span of just six months, from July to December, the value of the won dropped by approximately two-thirds. By year-end, it took 27,000 won to buy a single US dollar, compared to the previous decade's average of 8,000 won. This rapid decline not only affected the won's value against the US dollar but also against China's yuan, further complicating the country's partially dollarized economy.This devaluation was particularly challenging because it undermined the trust citizens had placed in their local currency. In an economy where three currencies—won, dollars, and yuan—circulated together, the sudden drop in the won's value led to widespread panic. Citizens rushed to convert their savings into more stable foreign currencies, exacerbating the downward spiral. The lack of effective monetary tools, such as interest rates, to stem the tide only worsened the situation.Economic Growth Stagnation and Trade Imbalances
Kim Jong Un's efforts to stabilize the won over the past decade came at a significant cost to economic growth. The conservative approach to printing money and extending credit, while successful in controlling inflation, severely limited domestic investment. As a result, the economy struggled to grow, especially when compared to other communist nations that have embraced more flexible monetary policies.Adding to these challenges, the gradual reopening of the border with China introduced a flood of Chinese products into North Korea. While imports surged, exports remained stagnant, creating a substantial trade deficit. This imbalance drained the country's supply of foreign currency, making dollars and yuan even more valuable. The resulting scarcity of foreign currency further eroded the won's value, leading to higher prices for essential goods like food and fuel.Impact on Daily Life and State Workers
The devaluation of the won had immediate and profound effects on the daily lives of North Korean citizens. Basic food prices skyrocketed, with rice jumping from 5,000 won per kilogram to 9,200 won by year-end. Corn and fuel prices followed a similar trajectory, placing additional strain on households. Although comprehensive data on consumer prices is limited, it is clear that inflation has returned after a decade of unusual stability.Interestingly, the devaluation may have had some positive outcomes. Reports suggest that state workers, who were previously paid meager wages or fixed rations, began to see nominal wage increases. However, these gains were quickly offset by rising market prices, leaving many frustrated. The dual economy—one driven by the state and the other by the private sector—continues to hinder development and productivity. Bridging this gap would require significant reforms, which could be politically challenging for the regime.Seeking Solutions: Policy Directions and Future Prospects
As the year came to a close, North Korea's leadership was likely grappling with how to address the monetary crisis. End-of-year meetings and speeches hinted at potential policy shifts, but concrete solutions remain elusive. Tighter ties with Russia offer some hope, though the benefits are likely temporary. A more sustainable approach would involve selling off state assets to fund salary increases and decentralizing the inefficient state system—a move reminiscent of China's economic reforms. However, such changes would require ideological flexibility, which may be difficult without a change in leadership.Boosting exports could provide relief, but sanctions make this path challenging. For now, North Korea faces a complex and uncertain economic landscape, one that will require innovative and bold policy decisions to navigate successfully.READ MORE