North Korea`s Strong Position against Mounting Pressure of US

On Friday, the Chinese official Xinhua News Agency reported that North Korea`s central bank would use euro instead of dollar to, for example, make payments to other countries. Upon receiving these news, neighboring countries as well as our government are busy figuring out what lies behind the policy change. In addition, a Russian media company reported the same. Considering these reports, the policy change of North seems certain to happen.

The news feels more like shocking, rather than just radical. Most government officials said "in harmony," "I don`t get it."

It may take more to figure out what is really intended. For now, most experts point out that a political motivation, not an economic reason, played a part. Sudden replacement of dollar with euro entails numerous side effects such as unnecessary trading cost and avoidance by business partners of North Korean counterparts. In a nutshell, it is impossible to explain in terms of economy.

Dong Yong-seung, chief researcher of Samsung in charge of North Korean economy, said, "90% of North Korea`s trade is made with China, South Korea, Japan, Russia and EU. Among these, only some of EU members conduct business in euro. Economically, therefore, it is impossible to explain. North Korea`s trade partners will resist it, and huge cost will occur in making transactions."

Purely in terms of making payments, there is no difference in using euro, dollar or yen. There is no substantial difference at all. Nonetheless, North Korea sticks to euro. North Korea must have wanted to demonstrate its dissatisfaction with discontinuance of the "fuel oil aid," and to cope with the mounting pressure of the United States.

Cho Myong-chul, a government researcher, analyzed, "North Korea seems determined to prove its strong position against the pressuring policies of the United States. North Korea may think that, if its hard-line approach wins favorable results from the United States, the profits therefrom are enough to set off the loss it`s sustaining now. Thus, the policy change may have been made for the purpose of maintaining its national system."

Some experts, however, argue that, by replacing dollar with euro, North Korea may gain profits domestically, even though it may lose internationally. North Korean government can earn revenues from collecting on the exchanging fees, and will pull out the dollar kept in individuals` safes. Experts estimate that individuals have secretly retained $600 million-$1 billion.

KDI researcher Cho Dong-ho said, "On July 1st, North Korea announced an economic measure to lead its citizens to voluntarily cough up dollar that has been kept secretly by equalizing the price in the black market to that in state-run business entities. This time, North Korea wanted to forcefully pull out the dollar kept in personal safes. It`s almost like a reform."

Dong-Ki Sung esprit@donga.com