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Kpw

What Is KPW?

KPW refers to the North Korean Won, the official currency of the Democratic People's Republic of Korea (DPRK), commonly known as North Korea. Within the realm of international finance and macroeconomics, KPW serves as the standard abbreviation under the ISO 4217 currency code. Unlike most global currencies, the KPW is largely inconvertible and tightly controlled by the State Bank of the Democratic People's Republic of Korea, acting as the nation's central bank. This makes the KPW a critical element in understanding North Korea’s highly centralized and isolated financial system.

History and Origin

The North Korean Won (KPW) was first introduced in 1947, replacing the Korean yen at par. Its history is marked by periods of stability, revaluation, and strict governmental control, reflecting the nation's unique economic policies. A significant event in the KPW's history was the revaluation enacted in November 2009. This drastic measure involved exchanging old banknotes for new ones at a rate of 100 to 1, effectively wiping out a substantial portion of savings held by ordinary citizens. The revaluation aimed to combat inflation, eliminate private savings accumulated in the shadow economy, and reassert state control over the economy. This policy triggered significant public discontent and economic disruption.

9## Key Takeaways

  • The KPW is the official currency of North Korea, identified by the ISO 4217 code.
  • It is a non-convertible or "blocked" currency, meaning it cannot be freely exchanged on international foreign exchange markets.
  • The State Bank of the DPRK maintains strict control over the KPW's exchange rate and circulation, largely insulated from global market forces.
  • An active black market exists within North Korea, where the KPW is unofficially traded at rates significantly different from the official pegged rate.
  • The value and behavior of the KPW are highly indicative of North Korea's centrally planned economy and its efforts to manage its internal financial landscape amidst international economic sanctions.

Interpreting the KPW

Interpreting the KPW requires an understanding that its official value does not reflect economic realities due to its inconvertibility and government control. The KPW's official exchange rate is largely symbolic and used for official state transactions. However, outside these controlled channels, a parallel market, or black market, operates where the actual purchasing power and prevailing exchange rates for foreign currencies like the U.S. dollar or Chinese yuan are determined by supply and demand. Therefore, any analysis of North Korea's economy must consider this dual-rate system. The KPW's behavior provides insights into the effectiveness of the government's monetary policy and the pervasiveness of the unofficial economy.

Hypothetical Example

Imagine an international aid organization attempting to fund a humanitarian project within North Korea. If they were to officially convert U.S. dollars into KPW at the government-mandated exchange rate, they might receive a seemingly high amount of KPW. However, when attempting to purchase goods or services locally, they would quickly find that vendors and individuals operate using the unofficial black market rates, which offer far fewer KPW per dollar. For instance, if the official rate is 1 USD = 100 KPW, but the black market rate is 1 USD = 8,000 KPW, the aid organization's converted KPW would have drastically less purchasing power than anticipated for real-world transactions. This disparity highlights the challenges of valuing the KPW and conducting international trade or financial activities within the country's unique system.

Practical Applications

The KPW's primary application is within North Korea's domestic economy, serving as the medium of exchange for everyday transactions among its citizens. Its existence under strict capital controls means it is not used in international commerce or global financial markets, distinguishing it from freely traded currencies. The DPRK's central bank manages the issuance and circulation of KPW banknotes and coins, and the government exerts significant influence over its value. This level of state control over the financial system is a characteristic of North Korea's centrally planned economy. T8his centralized approach dictates the flow of funds and economic activities, aiming to align with the state's economic plans rather than being responsive to global economic trends.

7## Limitations and Criticisms

The primary limitation of the KPW is its inconvertibility, meaning it cannot be freely exchanged for other currencies on global markets. This status is largely due to North Korea's economic isolation and the stringent capital controls imposed by its government. T6his inconvertibility makes it impossible to engage in traditional foreign exchange trading with the KPW. Furthermore, the significant disparity between the official exchange rate and the widely used black market rate introduces economic distortions. The black market, where foreign currencies like the Chinese Yuan and U.S. Dollar are widely accepted, often dictates the true cost of goods and services, bypassing official channels. T5his unofficial economy, driven by "donju" (new affluent entrepreneurial class), has gained significant influence, challenging the state's full control over the economy and leading to unofficial economic growth that is difficult for the state to tax or regulate. Attempts by the government to reassert control, such as the 2009 currency revaluation, have often led to unintended negative consequences, including public distrust and increased reliance on foreign currencies.

4## KPW vs. Foreign Exchange

The KPW differs fundamentally from the broader concept of foreign exchange (forex). Foreign exchange refers to the global decentralized market where currencies are traded, and their values are determined by supply and demand from millions of participants. In this market, the exchange rate between two currencies fluctuates continuously based on economic indicators, geopolitical events, and market forces. Currencies like the U.S. dollar, Euro, or Japanese Yen are freely convertible and actively traded in this environment.

In stark contrast, the KPW is a non-convertible currency, meaning it cannot be freely bought or sold on the international forex market. Its value is not determined by global supply and demand but is instead fixed by the North Korean government. While some limited, unofficial exchanges occur within North Korea's black market, these are outside the formal global foreign exchange system and do not reflect its inclusion in the global financial network. This distinction is crucial for understanding the KPW's unique role and the isolation of North Korea's economy.

FAQs

Is KPW a tradable currency on international markets?

No, the KPW is a non-convertible or "blocked" currency. It cannot be freely traded on international foreign exchange markets.

Who controls the value of the KPW?

The value and issuance of the KPW are strictly controlled by the State Bank of the Democratic People's Republic of Korea, which functions as the country's central bank. Its official exchange rate is set by the government.

3### Why is there a black market for KPW?

A black market exists for KPW due to the currency's inconvertibility and the government's tight control over the official exchange rate. This unofficial market allows individuals and businesses to exchange KPW for foreign currencies at rates that reflect real supply and demand, often providing a more realistic measure of the KPW's purchasing power.

2### What are the denominations of KPW?

KPW banknotes are issued in various denominations, including ₩5, ₩10, ₩50, ₩100, ₩200, ₩500, ₩1,000, ₩2,000, and ₩5,000. Coins are also minted in smaller values. One KPW is divided into 100 chon.

How does the KPW reflect North Korea's economy?

The KPW's characteristics, such as its inconvertibility and the prevalence of a black market, reflect North Korea's highly centralized, planned economy and its isolation from the global financial system. The currency is a tool for state control rather than a reflection of typical market forces.1