Over the past year, the North Korean won has experienced a notable decrease in value against the dollar and yuan. This shift has led to a significant transformation in marketplace dynamics, with a growing trend of more transactions being conducted in foreign currencies. Sources within North Korea have shed light on how these exchange rate changes have influenced public behavior and market preferences.

Unraveling the North Korean Won's Exchange Rate Journey and Its Effects

The Decrease in North Korean Won's Value

1: The North Korean won has witnessed a consistent decline in value against major currencies such as the dollar and yuan. This trend has had far-reaching consequences for the North Korean economy. As the value of the won drops, it becomes less attractive for both domestic and international transactions. Merchants and consumers alike are now forced to reassess their currency preferences and adapt to the new economic reality. 2: The decrease in the won's value is not just a statistical phenomenon; it has a tangible impact on people's daily lives. For instance, when purchasing imported goods or engaging in cross-border trade, the higher cost of the won makes foreign currencies more appealing. This has led to a shift in consumer behavior, with more people opting for transactions in dollars or yuan to avoid the losses associated with the depreciating won.

The Rise of Foreign Currency Transactions

1: Sources within North Korea have indicated a significant increase in public demand for foreign currency. Market vendors, in particular, have shown a preference for conducting transactions in either the dollar or yuan. This preference is driven by the diminishing value of the local currency and the need to protect their profits. For example, when the exchange rate between one yuan and the won fluctuates, vendors may adjust their prices accordingly to ensure they do not suffer losses. 2: The rise of foreign currency transactions is not limited to specific regions or industries. It has permeated various aspects of the North Korean economy, including domestic agricultural products. In the past, most agricultural products were bought and sold using the North Korean won. However, with the changing economic landscape, even in rural areas not typically influenced by smuggling, merchants are now preferring transactions in foreign currency. This shift challenges the authorities' efforts to regulate and control the economy.

The Reversal of De-dollarization

1: During the pandemic, North Korea witnessed a de-dollarization trend as trade restrictions were imposed. This led to a decline in foreign currency demand and exchange rates. However, the current rise in exchange rates has reversed this trend, driving a renewed preference for the dollar and yuan. Especially in regions close to the Chinese border, where smuggling previously played a significant role in facilitating the flow of Chinese-made goods, the preference for foreign currency has intensified. 2: The re-dollarization trend is a complex phenomenon that reflects the interplay between various economic factors. It not only affects trade and commerce but also has implications for the North Korean government's ability to manage the economy. As the reliance on foreign currency grows, the authorities face challenges in maintaining control over the domestic currency and implementing fiscal policies.

The Role of Money Changers

1: With the increasing reliance on foreign currency, North Koreans are turning to money changers for currency conversion. This has become a common practice as people seek to facilitate their purchases and navigate the changing economic environment. Money changers play a crucial role in providing the necessary services to meet the demand for foreign currency. 2: The growing usage of the dollar and the corresponding weakening of state control over the economy pose significant challenges for North Korea. Analysts like Son Gwang-su from the KB Financial Group Research Institute have pointed out that attempts to force North Koreans to use the North Korean won are likely to be ineffective in the face of the depreciation of the won. This highlights the need for the North Korean government to address these issues and find ways to manage the economy in a changing global context.

President-elect Donald Trump's decision to impose tariffs on products from Canada, Mexico, and China has sent shockwaves through the global currency markets. On Tuesday, these currencies saw a decline against the dollar, reigniting fears of trade wars and adding to the uncertainty in other currency pairs. This move by Trump has not only affected the value of major currencies but has also had an impact on cryptocurrencies like bitcoin.

Tariff Details and Their Immediate Effects

Trump stated that on his first day in office, a 25% tariff would be imposed on all products from Mexico and Canada. Additionally, for China, he proposed an additional 10% tariff on all their products entering the United States due to concerns over the export of ingredients used in illicit drugs. These announcements had an immediate impact on the currencies. The dollar initially jumped more than 2% against the peso and was last up 1.57% at 20.5992 pesos. It also hit a 4-1/2-year high against its Canadian counterpart, rising more than 1.5%, and was last up 0.69% at C$1.4082. Against China's yuan, the U.S. currency rose to its highest since July 30 and was trading at 7.26 yuan.Trading was thin ahead of Thursday's U.S. Thanksgiving holiday, which spills into Friday, and many traders took the opportunity to take off. This lack of trading activity may have contributed to the initial volatility but also left the markets vulnerable to further fluctuations.Juan Perez, director of trading at Monex USA in Washington, DC, noted that while the full impact of the tariff announcements may not be felt immediately due to the holiday week, the peso is particularly vulnerable to falling into multi-year lows against the US dollar.Jane Foley, head of FX strategy at Rabobank, emphasized the unpredictability of the situation. She said, "We had a perfect example last night of why volatility is more likely under Trump. He can just put out a comment like that outside of usual U.S. market hours that takes people by surprise. It leaves investors scrambling to work out what this really means."

Defense of the Dollar After Trump's Announcement

After Trump's announcement on Friday that hedge fund manager Scott Bessent would become U.S. Treasury Secretary, the dollar was a bit on the defensive. This announcement buoyed government bonds and sent yields lower. As a result, the dollar was last down 0.38% at 153.63 yen while the euro was up 0.05% at $1.0499. The dollar index was at 106.89, versus 106.86 late Monday.Perez further explained that the tariff news has helped the yen as a safe haven. He said, "Any type of turbulence and turmoil that may be thrown in the way of China is not necessarily always going to be a benefit for Japan, but it opens room for Japan to negotiate more of a place of leadership once again in Asia."

Impact on Other Currencies and Cryptocurrencies

The Australian dollar sank to a more than three-month low of $0.6434 in early Asian trading and was last down just 0.57% at $0.6465. Given that China is Australia's biggest trading partner, the Aussie is often seen as a liquid proxy for the yuan.In the cryptocurrency market, bitcoin was trading at $93,334, well below the record high of $99,830 it touched last week. Bitcoin saw profit-taking ahead of the symbolic $100,000 barrier as investors expected Trump to loosen the regulatory environment for cryptocurrencies. Since the U.S. election, bitcoin has climbed more than 40%.Erik Nelson, macro strategist at Wells Fargo, noted that some investors may have been buying the euro to close their previous bets against the euro-Canadian dollar currency pair. Some had seen this as a "Trump trade" in the belief that Europe would be hit harder by tariffs than Canada.Scheduled news this week is on the light side, with the main events being the minutes from the Federal Open Market Committee's November meeting due at 2 p.m. EST/1900 GMT and on Wednesday the October Personal Consumption Expenditures price index. These events will likely provide further insights into the economic outlook and could influence currency and cryptocurrency markets.