North Korean leader Kim Jong-un (Yonhap)
North Korea was holding foreign exchange reserves of between $3 billion and $6.6 billion in 2014, but that dipped heavily after the country came under strict US-led sanctions in 2017, the latest report released by the Bank of Korea said Tuesday.
The report, which was largely based on estimations and hypothetical analyses due to the lack of available data from the secretive country, said the North’s holdings of US dollars may have sharply shrunk since the sanctions -- by an estimated $1 billion each year.
The country’s dollar holdings are presumed to have been on a decline between 2014-2016 already, albeit at a slower pace of around $100 million a year, the report said.
A large portion of the dollars are held by households, as the money is widely used in trade at the cash-strapped regime’s markets.
Despite the shrinking reserves and growing trade deficit, however, North Korea seems to have managed to keep the exchange rate and consumer prices under control, according to the report.
It furthered that the rise of the exchange rate and consumer prices in North Korea could signal a potential loss of dollar circulation there. If that happens, Pyongyang might see an economic crisis similar to the Asian financial crisis Seoul endured in 1997.
“North Korea is a closed economy, so it would be uneasy for us to project the fallout in the event of the economic collapse,” the report added.
By Choi Si-young (email@example.com