'Dollarisation' of North Korean economy, once vital, now potential threat to Kim's rule

Before fleeing North Korea in 2014, Jeon Jae-hyun kept U.S. dollars as a store of value and used Chinese yuan to make everyday purchases at markets, restaurants and other places. He used the domestic currency, the won, only occasionally.

“There were not many places to use the won, and we actually had little faith in our currency,” Jeon said during a recent interview in Seoul. “Even the quality of North Korean bills was awful as they often ripped when we put them in our pockets.”

North Korea has tolerated the widespread use of more stable foreign currencies like U.S. dollars and Chinese yuan since a bungled revaluation of the won in 2009 triggered runaway inflation and public unrest.

The so-called “dollarization” helped ease inflation and stabilize exchange rates, enabling leader Kim Jong Un to establish a stable hold on power after he inherited that role in late 2011. But the trend poses a potential threat to Kim as it has undermined his government’s control over money supply and monetary policies.

The isolation of the pandemic badly hurt the North’s economy but still gave Kim a chance to solidify social controls by restricting market activities and limiting influence from capitalist, democratic South Korea. Now, observers say Kim is trying to roll back use of the dollar and yuan to tighten his grip on power as the North grapples with pandemic-related hardships, longstanding U.N. sanctions and tensions with the U.S.