A Tough Year Ahead: North Korea's Economic Challenges in 2025

- An Analysis of North Korea's Economic Status and Future Outlook -

Son Kwang-soo

Research Fellow, KB Financial Group Research Institute

In 2024, North Korea's close military cooperation with Russia overshadowed awareness of its economic situation. Key developments included a sharp rise in foreign exchange rates, the domestic impact of the Russia-North Korea alliance, and advancements in establishing an electronic financial system.

Among these, the most striking is the significant increase in North Korea's foreign exchange rate. According to DailyNK, a media outlet specializing in North Korea, the exchange rate between the North Korean won and the U.S. dollar, which ranged between 8,100 and 8,400 won in 2023, rose above 8,500 won in early 2024. By March, it hit 8,700 won, and by June, it skyrocketed past 12,000 won.

This sharp rise in the exchange rate is particularly notable in Jangmadang, North Korea's local free market, marking the first such surge since the 2009 currency reform. After that reform, the exchange rate briefly spiked but later stabilized between 8,000 and 8,500 won per dollar, providing some economic stability for residents amid chronic hardship. The gap between the official exchange rate (1 USD = 100–106 won) and the Jangmadang rate, which reflects the "real" value of the won, underscores why the stability of 8,000 won per 1 USD from 2010 to 2022 should have been maintained.

Several factors contributed to this unprecedented rise. The resumption of trade and smuggling with countries like China after COVID-19 increased the demand for foreign currency. Additionally, the North Korean government’s launch of its "20x10 Regional Development Policy" in early 2024 caused a sharp rise in demand for Chinese yuan. A further spike followed in June when authorities banned the use of foreign currencies, inadvertently driving up the exchange rate.

North Korean farmers are loading manure to be sprayed in the fields./ the Rodong Sinmun

By September, the dollar exchange rate surged to 16,000 won, reaching 20,000 won by December and 22,000 won by early 2025—a 170% increase compared to the previous year. This dramatic rise, coupled with inflation, has made it even harder for ordinary citizens to afford basic goods like corn and rice.

The deepening military relationship between Russia and North Korea is another factor influencing the economy. Assessing the extent of its impact remains challenging due to the lack of transparent data from both nations, especially on military-related goods.

In March 2024, Russia ceased its monthly reporting of refined oil exports to North Korea to the United Nations Security Council Sanctions Committee. Meanwhile, U.S. intelligence, relying on commercial satellites and other methods, reported that Russia exceeded the annual 500,000-barrel cap set by UN Security Council Resolution 2397. It is clear that the refined oil and natural gas supplied to North Korea through China and Russia is intended to support military production or stabilize elite groups, rather than address the nation’s broader economic challenges.

North Korea made strides in digital finance by enacting an Electronic Commerce Law in November 2024, following its 2021 Electronic Payment Law. Electronic payments, which integrate finance and ICT, offer convenience, accuracy, and speed in regions like China, Southeast Asia, South Korea, and the U.S., while also aiding in anti-money laundering and taxation efforts.

Since 2018, North Korean authorities have gradually promoted mobile electronic payments via cell phones. However, their primary focus has been on ensuring the smooth circulation of electronic currency, rather than introducing interest-bearing accounts, financial products, or mobile financial services like delivery. While North Korea could draw inspiration from platforms like China’s WeChat or Southeast Asia’s Grab, which evolved from payments and taxi-hailing to delivery and financial services, no such advancements have been reported within the country.

The focus remains on restricting foreign currency use and promoting domestic currency circulation through state-controlled financial policies. The Electronic Commerce Law is primarily designed to reclaim residents’ foreign and domestic currencies via electronic stores and payments.

North Korea’s economy in 2025 faces numerous uncertainties. The geopolitical effects of Donald Trump’s second presidency, coupled with U.S.-China trade tensions, could reshape North Korea’s relationships with its neighbors. While the Russia-North Korea alliance has reportedly strained ties with China, potential overtures from Trump to Kim Jong-un might prompt Xi Jinping to strengthen relations with North Korea.

Improved North Korea-China relations could stabilize local markets and temporarily ease economic pressures. However, inflation and soaring exchange rates will continue to burden ordinary citizens, despite possible government efforts to stabilize the won.

Although authorities have not yet controlled the surge in exchange rates, they may be deliberately refraining to limit foreign currency use and boost domestic consumption. Exchange rates might stabilize in early 2025, but prices are unlikely to return to previous levels. While higher costs may be manageable for the elite, they will remain a severe challenge for ordinary citizens struggling to afford basic meals.

China and Russia are expected to provide food and material aid, which may reduce the likelihood of famine-related deaths despite ongoing economic hardships. However, if inflation remains unaddressed, dissatisfaction among North Korean citizens toward the government could intensify.

The extended Russia-Ukraine war also plays a critical role. As long as the war persists, North Korea benefits from military supplies or troop deployments. Even after the war ends, Russia is likely to maintain economic support to secure North Korea as an ally.

2025 may feel harsh for ordinary people, like enduring a long winter, but it could benefit the elite as they exploit U.S., Russia, and China dynamics. These benefits, however, may pose security threats to South Korea.