Most North Korean experts would likely regard exchange rate and price stability as the Kim regime’s most successful economic policies from 2013 to 2023. Its performance during this period was in stark contrast to it in the previous period. Following the failure of the 2009 monetary reform, North Korea experienced hyperinflation until 2012.[1] This led to widespread reluctance to hold the North Korean won and a significant increase in dollarization, undermining the regime’s economic control. Had the regime learned from the failure? Exchange rates have stabilized since 2013, with the exception of 2021 and 2022, largely holding at 8,000 KPW per dollar.[2] The stabilization of the exchange rate also alleviated inflationary pressure from rising import prices. For instance, while the price index stood at 100 in 2013, it reached only 108 by 2019.[3] Although prices spiked between 2020 and 2022 due to COVID-19-related border lockdowns, the absence of a corresponding surge in exchange rates helped prevent destabilization of North Korea’s macro economy.[4]

However, the exchange rate has changed significantly since 2024. In early 2024, it was around 8,000 KPW to the dollar, but by mid-February 2025, it had more than doubled to approximately 21,000 KPW. Despite Kim Jong Un’s orders to stabilize the exchange rate, the surge persisted.[5] What explains this rise, and how might it evolve in the future? What are the implications of this exchange rate increase for geopolitics and North Korea policy?

The surge in the exchange rate at the end of 2023 is believed to be linked to a significant increase in workers’ wages. North Korea raised official wages from an average of around 3,000 won per month to between 40,000 and 60,000 won, although it varied depending on the job. This substantial wage increase appears aimed at curbing market activity and integrating the labor force into the official economy. Prior to this, the income earned through market activities was often 100 times or more than the official wage, leading many North Koreans to prefer market activities over formal employment. As market activity became more prevalent, the regime, concerned about the negative impact on its marketization strategy, sought to restore the socialist economic system by sharply raising wages. This shift, along with the establishment of state-owned grain stores and increased crackdowns on market activities, reflects efforts to reassert state control over the economy.

How would the wage increase be financed? The worst-case scenario would involve issuing money to cover the costs, which would lead to skyrocketing exchange rates and inflation, placing a significant political burden on the regime. Such policies aimed at curbing market activities and restricting citizens to official jobs would fail. On the other hand, the best option would be to issue North Korean won in proportion to new foreign currency income. This approach would prevent an impact on the exchange rate and keep import prices stable. However, if the supply of essential goods, such as food and energy, increases, inflation could remain limited. A unique opportunity newly emerged for the North Korean regime. By selling weapons and sending troops to Russia, it could earn foreign currency while securing food and energy from Moscow. Geopolitics may allow Pyongyang to reverse the marketization trends that have disturbed the regime since the Arduous March of the 1990s.

Would the policy succeed? Pyongyang now finds itself between the worst and best-case scenarios. While there may have been an influx of foreign currency, it was insufficient to raise wages without affecting the exchange rate. As a result, the exchange rate has more than doubled.[6] Food and energy aid also failed to fully curb inflation. For instance, rice prices rose from 5,000 won to 8,000 won per kilogram by the end of 2023. Previously, it was difficult to buy even one kilogram of rice with an official monthly wage; now, 50,000 won buys six kilograms. However, does this signify a substantial improvement in the welfare of the North Korean people?

It is difficult to say so. The policy primarily benefits those employed in official sectors. Individuals without regular jobs or those engaged in market activities have seen their real income decrease due to inflation, potentially forcing them to barely make a living. Additionally, one who previously earned 300,000 won a month from market activities and now holds an official job paying 50,000 won will experience a significant decline in welfare. Can such a wage increase truly reverse marketization and contribute to establishing a socialist economy?

A greater concern is the sustainability of this policy. To maintain it without significantly affecting prices, foreign currency imports, along with food and energy aid from Russia, must continue. However, the Russia-Ukraine war will eventually end. If North Korea can no longer supply weapons or send soldiers to Russia, failing to secure alternative resources, it will become difficult to pay wages without causing significant monetary devaluation. This, in turn, would undermine economic incentives and restrict residents’ market activities.

The stability (and instability) of the North Korean economy will largely hinge on geopolitics. North Korea’s income has already been halved compared to 2016 due to international sanctions against the Kim regime. If prices increase substantially due to this risky policy, purchasing power of the North Korean people will plummet. Beyond an economic crisis, the regime itself could face serious threats. Focusing solely on the visible aspects of North Korea’s policies will lead to failure in analysis. A proper direction for North Korean policy can only be established through an objective evaluation of the underlying realities of its economy. 

References

Choi, Minwoo. 2024. “North Korean Currency Plunges by 75%... People Executed on Rumors of Currency Reform (Translated).” Kukmin Ilbo. November 26. https://www.kmib.co.kr/article/view.asp?arcid=0020769375

Lim, Song and Seunghyun Moon. 2024. “Market Prices in North Korea: 2006~2022.” The Korean Journal of Economic Studies 72, 1: 73-139.

Yang, Minchul. 2024. “‘Stabilize the Exchange Rate’ despite Kim Jong Un’s Order...North Korea’s Exchange Rate Hits Record High, while Prices Fluctuate (Translated).” KBS News. May 23. https://news.kbs.co.kr/news/pc/view/view.do?ncd=7970791

[1] Inflation in 2010, 2011, and 2012 reached 407%, 201%, and 92.4%, respectively (Lim and Moon 2023).

[2] In the first half of 2020, the exchange rate of the dollar, which had been stable at 8,000 KPW per dollar, declined to 6,000 won by October of that year, further dropping to 5,000 won in early 2021 and 4,000 won by the end of 2021. Although the exchange rate subsequently increased to 6,000 won, it was not until the second half of 2022 that it fully recovered to 8,000 won.

[3] Economic sanctions imposed on North Korea since 2016 have the potential to either increase or decrease prices, depending on their impact on supply and demand dynamics. It is highly probable that these sanctions contributed to a reduction in prices during the 2016-2019 period.

[4] North Korea’s inflation in 2021 and 2022 was 12.7% and 5.9%, respectively (Lim and Moon 2023).

[5] Some reports state that Kim ordered to stabilize the currency rate to no real effect https://news.kbs.co.kr/news/pc/view/view.do?ncd=7970791.There were also reports that he ordered a strong crackdown on currency exchange activities that undermined currency stability, framing those who participated in those activities as “rebels.” https://www.kmib.co.kr/article/view.asp?arcid=0020769375.

[6] From another angle, the North Korean regime may have deliberately inflated the exchange rate to increase the value of the North Korean won, thereby securing additional resources to raise wages.

■ Byung-Yeon KIM is Distinguished Professor of Economics at Seoul National University.

■ Translated and Edited by: Sheewon Min, Research Associate 
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