Photo illustration shows a selection of North Korean 5000-won bank notes issued by Pyongyang. Photo: AFP / Ed Jones

Something weird recently happened to what had been one of the world’s least coveted currencies.

If you were North Korean and wanted to buy a single Chinese yuan on May 7, it would have cost you 97o North Korean won. By May 29, reports Osaka-based AsiaPress/Rimjingang, undercover reporters based near the Chinese border were being quoted a rate of 650 won per yuan.

The lowly won had jumped 33% against the yuan and at the same time was up 18% against the US dollar. The swollen exchange rates continued in effect this week, reported AsiaPress, which gathers news via smuggled Chinese cellphones employed close enough to the border to dial into the Chinese phone network.

The trend was also reported by DailyNK, a Seoul-based news organization that likewise collects news from locals armed with such phones.

Theories on what was behind the odd phenomenon included variations on the usual themes when North Korean money markets go crazy:

Either (1.) the Kim Jong Un regime was manipulating the currency market in order to try to maintain some control over a rising middle class that relies on private market transactions rather than being dependent on the old socialist state sector of the economy – and/or (2.) the regime was engaged in an outright grab of foreign exchange as it has done or attempted to do from time to time starting with 2009’s won revaluation.

Photo illustration shows a selection of North Korean currency bank notes issued by Pyongyang, displayed in Seoul on January 4, 2018. Photo: AFP / Ed Jones

A perhaps less sinister explanation: An expected renewal of trade with China – trade that was halted at the beginning of 2020 in an effort to keep the coronavirus out – hasn’t happened yet, for whatever reason, and traders who had accumulated foreign exchange now have little use for it and are dumping it. Meanwhile, the wealthy North Korean capitalists called donju are happy to buy it up at a huge discount.

One AsiaPress “reporting partner,” Mr. B

heard from a trade official that “even if trade with China resumes in the future, trading companies will only be able to use a foreign currency that they have exchanged at banks with permission from the trade bureau of each province.”

In other words, trading companies may not be able to use a foreign currency of unknown origin that the authorities cannot ascertain. This is a blow to organizations that have foreign currency on hand.

“Rumors are spreading those foreign currencies will be turned into scrap paper, and more and more people are rushing to sell their foreign currencies. On the other hand, the donju are taking advantage of the current appreciation of the won and are hoarding Chinese yuan. Although the people’s distrust of their currency is deep-rooted, the sudden appreciation of the won is confusing the market,” said Mr. B.

AsiaPress offered this background:

The exchange rate between the North Korean won and the Chinese yuan or US dollar is determined independently by underground money changers called tondeko around the country, based on reference values unofficially announced by the Foreign Trade Bank of [the Democratic People’s Republic of] Korea in Pyongyang every morning.

AsiaPress has been researching and publishing the market rates of various regions once a week. This time, several reporting partners living in the northern part of the country conducted a survey and confirmed that the figures were almost the same.

The above figures are from the city of Hyesan in Ryanggang Province, but a report was received from Hoeryong in North Hamkyung Province on the night of [June] 7th that 1 Chinese yuan = 640 won and 1 US dollar = 5,200 won. It does not appear to be a temporary surge of the won in a specific region.

Bradley K. Martin is the author of Under the Loving Care of the Fatherly Leader: North Korea and the Kim Dynasty.