North Korean economics 101: How much is a dollar worth?
PYONGYANG, Korea, Democratic People’s Republic Of — 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.