This article was originally published by Radio Free Asia and is reprinted with permission.
North Korea banned the use of foreign currency this month and has begun confiscating yuan and dollars from citizens by stopping them on the street for random searches, sources in the country told Radio Free Asia.
Citizens are ordered to exchange their foreign currency for the domestic won, but they prefer Chinese and U.S. currency because it is thought to be more stable.
Inflation in the 1990s and 2000s had become so bad that Pyongyang revalued the won 100:1 in 2009, The government announced the change and then allowed people to convert only a certain amount of old won, making the rest worthless and wiping out the life savings of many citizens.
Fearing that another revaluation could come at any time, most have lost faith in the won.
But the new won-only policy could be an indication that authorities are collecting foreign currency to prepare for a total resumption of trade with China, which was suspended at the beginning of the coronavirus pandemic in 2020, and restarted only on a limited basis in 2022.
“Some are wondering if the opening of customs trade between North Korea and China is imminent with the recent ban on the use of foreign currency,” a resident of the northwestern province of North Pyongan told RFA’s Korean Service on condition of anonymity for safety reasons.
“This is because in the past, ahead of periods of increased trade between North Korea and China, the authorities had to maneuver foreign currency out by issuing a ban.”
North Korea previously banned foreign currency in Jan. 2010, shortly after the revaluation, likely in an attempt to force the public into accepting the revalued won. It however had to lift the ban in February of that year because of runaway inflation that disrupted economic activity.
In May of that year, the South Korean government put a stop to all economic exchanges with the North, forcing Pyongyang to increase trade with Beijing by about 30%.
The government is confiscating foreign currency from the citizens in order to secure enough of it for when trade with China completely resumes, likely later this year, a North Korean escapee who once worked as the head of a military unit that dealt with foreign currency, told RFA on condition of anonymity for security reasons.
The former unit leader, who settled in South Korea in 2016, said that the North Korean government would be unable to confiscate all the foreign currency from the people because they would never cooperate.
The policy was announced during the weekly neighborhood watch unit meetings, a source from the northeastern province of North Hamgyong told RFA on condition of anonymity.
“Residents with foreign currency must exchange it for domestic currency at the market or in stores,” she said, adding that those who refuse to convert their stashes risk being randomly stopped and searched by police.
“If they find foreign currency, not only is it confiscated, but the details of how they acquired it and how it is being used are investigated,” she said.
The North Pyongan resident described these searches as “tigers hunting for prey,” but even so, the government-backed money changing booth in the local marketplace is not raking it in.
“Most residents have a very negative attitude towards the order to ban foreign currency,” he said.
Worn out paper money
Another reason people dislike the won is because the most commonly used notes are now falling apart. The bills currently in circulation include 1,000, 2,000, and 5,000 won notes printed in 2008, and a newer 5,000 won note printed in 2014.
“Domestic bills are so worn out that it’s almost not worth it to glue them together or add paper [to stabilize them],” he said. “Large-scale merchants have to hire people to glue the money back together every evening.”
North Korean notes are of such a low value that they are not convenient, according to the North Hamgyong source.
“With 100 yuan being around 120,000 won, when [one 100-yuan note] is exchanged, it becomes 120 1,000-won notes, and it is bulky to walk around with,” she said.
“Some residents are only exchanging a small amount to avoid the authorities’ crackdown,” the source said. “However, most residents are protesting the government’s ban… They say that if the authorities cannot afford to change worn-out bills then they are not in a position to ask them to not use foreign currency,”