North Korea Revalues Its Currency

**Toad** · 12-05-09, 02:06 AM

http://www.nytimes.com/2009/12/02/bu.../GQ3YwMf9WEjZg

SEOUL, South Korea — North Korea has taken confiscatory steps to curb unofficial economic activity and suppress inflation, issuing a revalued currency and sharply limiting the amount of old money people can exchange for new bills, South Korean news reports said Tuesday.

The measures appeared to be a crude form of shock therapy intended to severely punish people involved in black market trading, which had begun to take root in North Korea in recent years as the country’s central planning system broke down.

If carried out as described by South Korean and Chinese news agencies, the adjustment would wipe two zeroes off the value of North Korea’s currency, the won, and allow people to exchange only about 100,000 to 150,000 old won for the new notes. That would effectively decimate private stores of cash wealth in local currency. At the official exchange rate, 100,000 won is the equivalent of $690, and at the black market rate it is worth only $35.

Unconfirmed reports on South Korean news Web sites said that the revaluation and exchange limits briefly set off street protests in North Korea’s capital, Pyongyang, forcing the authorities to revise slightly upward the amount of currency people could exchange.

The value of the dollar and the Chinese currency skyrocketed as people rushed to underground money-exchangers, said the Yonhap news agency of South Korea, citing anonymous North Korean traders in China.

Rail stations were crammed with “uncontrollable crowds” of people rushing home to swap their money, said Daily NK, a Seoul-based Web site that specializes in gathering North Korean news, citing informants in Haesan, a North Korean town near China, and other cities.

“It’s all chaos in markets and railway stations,” Daily NK quoted a North Korean as saying.

But Good Neighbors, a Seoul-based Buddhist relief agency that collects information on North Korea through people inside the country, said that Pyongyang and other major cities had returned to “utter quietness” by late Tuesday as the North’s secret police, the national security agency and the military increased patrols, and most shop owners closed their stores.

North Koreans were shocked by the currency reform, Good Neighbors said. Many had stored cash to help tide them over during the lean winter and spring months, but now they have suddenly seen much of their savings wiped out, the group said.

There was no official announcement of the measure in North Korea’s official media, and the accounts of protests in the North, which would be rare in the tightly policed country, could not be independently confirmed.

“As people rushed to swap money, commercial activities have virtually come to a standstill,” Good Neighbors said in a statement. “The purpose of the reform is to kill private market activities that stoked anti-socialism.”

South Korea has received intelligence about the reported currency move but has been unable to confirm it, said Chun Hae-sung, a government spokesman.

Choi Soo-young, an expert on the North Korean economy at the government-financed Korea Institute for National Unification in Seoul, said: “The primary aim is to control inflation. But the North also wants to stop the market from prospering too fast.”

Since a famine that killed many North Koreans and shook the rationing system in the mid-1990s, the North’s centrally planned economy, with state-run stores that sell goods at government-set prices, has coexisted with an unofficial economy where people sell homegrown food or goods smuggled in from China.

For a time, those nascent signs of private-sector activity were cited as evidence that the North Korean leader, Kim Jong-il, might be inclined to follow the example of China, the North’s neighbor and most important backer, which began to move away from its dysfunctional central planning system in the late 1970s. At that time, Beijing first allowed entrepreneurs to supplement the country’s state-run production and distribution systems.

But after years of tolerating unofficial markets, North Korea declared in 2005 that it was reinforcing the ration system. Since then, it has restricted the kinds of goods that can be sold in the markets, how often they should open and the age of people who can sell there.

Earlier this year, Vitit Muntarbhorn, the United Nations’ special representative on the human rights situation in North Korea, said that the government had singled out women in a crackdown on marketing activities.

He said that by suppressing the private markets, the government was demonstrating its intention to keep North Koreans dependent on the state.

Women have been especially active in the private markets, and there have been reports in the South Korean news media about young North Korean women protesting against the government’s renewal of antimarket measures while food shortages have persisted.

In June, the authorities shut down the largest unofficial market for food and goods outside Pyongyang, dispersing traders to smaller markets in other districts, according to South Korean news reports at the time.

One reason is that the mix of state and private activity has fueled inflation, partly by drawing goods that would otherwise be sold at low, state-subsidized prices into more lucrative private markets.

“With the government stores unable to provide enough supplies, unofficial markets have fueled inflation,” said Dong Yong-sueng, an economist at the private Samsung Economic Research Institute who monitors the North Korean economy.

Food prices have risen so sharply in recent years that workers can buy only two kilograms of rice, about four and a half pounds, with their monthly wages, according to Open Radio for North Korea, a Seoul radio station and Web site that specializes in collecting news from informants in the North.

The North Korean officials also saw the increasingly vibrant markets as a conduit of capitalist ideas and outside influence on the tightly controlled populace.

By wiping out much of the wealth that traders have accumulated, the currency measure could anger many people who lose money. But from the government’s perspective it could have the effect of reducing a growing income gap among citizens, Mr. Choi said.

The measure will have an immediate but short-lived impact in fighting inflation, Mr. Choi and Mr. Dong said. But it could also worsen the North’s already acute shortages by discouraging the markets, which have emerged as an important source of food for North Koreans.

“As long as the North’s official economy cannot generate enough goods, and unless it can invite foreign investors by improving external relations, inflation will recur,” Mr. Dong said. “The vicious circle will continue.”

They actually had demonstrations in Pyongyang? It's getting even worse over there, and it was already really bad.