James Pearson of Reuters quotes an unnamed spokesperson for the Korea Economic Development Association that exchange rates in the 14 new city-wide SEZs will be fixed according to (local) market rates. Its less an experiment but as he describes it, a more open willingness to accept existing black market clearing rates. Newspaper headlines often exaggerate. Often whether one floats a currency or fixes a currency are two diametrically opposed concepts. To float a currency means to follow the market clearing rate. To fix a currency means to officially enforce a rate determined by the monetary authority. Currently DPRK has an officially sanctioned fixed rate. (If youre very aggressive with it, youd send the black market offender to jail.) However, in DPRK there exists a black market floating exchange rate that does not vary greatly between cities, according the Daily NK data. In developmental economies, official exchange rates are usually fixed. Though often they closely track the market clearing rate, the ability to fix rates and enforce it economy wide provides a little degree of policy maneuver. That DPRK is officially tolerating the existence of black markets, black market floating exchange rates, and now is suggesting that official exchange rates at least at the SEZs will be floated, means that economic reform is... well, being experimented with, albeit for foreign observers, it may appear to be at a snails pace. However, the DPRK won is highly undervalued because of the existing economic and financial embargoes and trade sanctions which highly reduce the value of the North Korean won by limiting its demand in foreign markets. Also a big factor is the uncertain investment climate as the result of the unresolved Korean War and the denuclearization issue along with the DPRK regime not openly embracing economic reforms and rule of law with regard to foreign investments means that the DPRK won is less in demand. Unfortunately James Pearson omits these very important details. Finally, the current state of under development, the lack of pro-market policies and laws, and the lack of rule of law in DPRK continue to impact negatively on the local currency. Too remember that while in the border regions the Chinese Yuan is popular and functions as a de facto currency, in Pyongyang and other cities, the dollar is reportedly very popular. Thus, thanks to the mismanagement of the 2009 currency devaluation fiasco by KJI, DPRK effectively has three currencies: Won, Yuan, and the Dollar. The DPRK economy is not only yunaized, its also dollarized, and it currently lacks a viable currency. Finally, having a strong local currency gives the local economy and the government great benefits, and a great deal of control and leeway for the monetary and economic planning authorities. Having others use your currency in place of their own also gives you (not them) great benefits. Thus, contrary to juche philosophy, DPRK is benefiting and remains dependent on foreigners - the Chinese Yuan and the US Dollar. Thus, the currency redenomination of 2009 under KJI worked counter to juche and made DPRK more dependent on foreign governments.
Posted on: Mon, 04 Nov 2013 02:21:19 +0000
Trending Topics
Recently Viewed Topics
© 2015