PYONGYANG, North Korea — To get a feel for how North Korea’s economy works, go buy a roll of toilet paper. Or start up a mobile phone network.
As capitalist-style markets have grown more important in North Korea, so has a market-friendly exchange rate for the much-coveted U. S. dollars, euros and Chinese yuan that lubricate the North’s economy. But the official and unofficial rates are totally out of whack. And as one big investor recently found out, the difference can mean hundreds of millions of dollars in lost profits.
Dueling exchange rates are a common issue for developing countries that have an official premium rate set by the government, often for political purposes that don’t reflect economic realities and are therefore often ignored in the marketplace.
The discrepancy can severely hamper foreign investment, undermine confidence in the local currency and contribute to corruption and economic instability.
But nowhere in the world is the gap bigger than North Korea, according to Steve Hanke, a professor of applied economics at the Johns Hopkins University who specializes in hyperinflation,
“The North Korean won’s black market premium is the highest in the world: a fantastic 6,440 percent,” he said. For comparison’s sake, the black market premium for the Syrian pound is “only” 144.3 percent of the official rate, he said.
What does such a system look like on the ground?
If you pick up that roll of toilet paper in a shop catering to foreigners, tourists or the relatively affluent elite in the capital, it would probably have a price tag in the 200-400 won range, or $2-4. The prices in won are calculated according to the official exchange rate. In reality, you can’t actually pay in won, at least not at that rate.
Typical Pyongyang residents, meanwhile, are more likely to do their shopping at a place like the Kwangbok Department Store, which does take won and therefore uses an entirely different pricing system. Here, a roll of toilet paper costs 1,400 won. An exchange booth right next to the checkout counter posts the day’s rates — not the official 108-or-so won to the dollar, but a whopping 8,000-plus.
