DPRK revalues currency

UPDATE 20:  It might be possible that public anger over the government’s new monetary policy forced the govenrment to increase the maximum amount of currency that can be converted.  According to the AFP:

North Korea has backtracked on details of its shock currency revaluation following a riot by market traders that led to 12 executions, a report said Tuesday.

South Korea’s Chosun Ilbo newspaper said the hardline communist state had taken a series of steps to placate its people over the 100-to-one revaluation announced two weeks ago.

It said the concessions follow a riot by merchants in the eastern city of Hamhung on December 5-6 which stirred public sympathy. Twelve “masterminds” of the unrest were later executed, the paper said.

It was not possible to confirm the reported riot or executions. But there have been accounts of widespread anger since the regime revalued its currency earlier this month, requiring old banknotes to be exchanged for new ones at the rate of 100 to one.

Analysts said the move was aimed at curbing inflation and clamping down on a growing free-market economy to reassert the regime’s control.

But the initial limit of 100,000 won on the total cash that each person could exchange effectively wiped out many people’s savings in the impoverished nation.

On Sunday authorities raised the limit to 500,000 won, Chosun said, quoting sources in the North.

One hundred thousand won in old money was equivalent to 30-40 dollars at the previous black market rate.

The North also announced that eventually citizens would be allowed to exchange all their old bills for new ones if they deposit the money in banks, Chosun reported.

People reportedly shun banks because they fear investigations into the source of their savings, or restrictions on withdrawals as in the past.

In response, Chosun said authorities promised no probe into savings of up to one million won and unlimited withdrawals if savings of more than one million are properly explained.

The newspaper quoted a high-level North Korean source as saying authorities “are backtracking under pressure from market forces”.

UPDATE 19:  The Daily NK reports that DPRK authorities launched the monetary revaluation without establishing new wages and prices:

A source of Yangkang Provicne explained in a phone conversation with The Daily NK on the 11th, “Wages of workers used to ranged between 1,300 and 2,500 North Korean won.” “If this is put into operation, then the wages of the secretaries of the Provincial Committee of the Party would be leveled to approximately 1,000 won.”

“It was agreed that a precise measure relating to wages was not yet perfect and would be relayed to the accounting clerks at a later time,” the source adds. “Under the decree, all debt relations among existing enterprises would become ‘zero’ and foreign currency earning organizations will hereafter undergo adjustments. However, due to the fact that the size of liabilities between enterprises is not so significant, it is essentially a meaningless measure.”

Unusually, on the morning of the 9th, the lecture broke free from the customary one-sided presentation of the Party decree in favor of audience participation. Attendees stated one after another: “We must establish reasonable prices as soon as possible and stabilize the workers;” “If the food problem is not resolved, then we will not be able to prevent rising prices;” “The existing wages and [state mandated] food prices should be adhered to;” and so on.

In the end, the Yangkang meeting offered a temporary, partial settlement of enterprise wage and debt issues as well as the announcement that more follow-up measures will be introduced in the near future. Authorities also stated that “national course of action” on price-related matters will be subsequently delivered.

The only government-authorized pricing to be finalized involved railway shipping charges. A “temporary” train route table has been posted at the Youth Hyesan Station, with Hyesan-Pyongyang fare set at 46 won and Hyesan-Baegam fare at 18 won.

“When judging by distance, it is almost more expensive to operate intra-provincial trains,” the source observes. “Fixing the Hyesan-Pyongyang cost at 46 won was based on the temporary trains that ran when university students in Pyongyang would return to their hometowns during the early break. There is no other meaning.”

But the fact that other price measures were not announced at the cadres meeting helped maintain a sense of confusion among North Korean citizens. “Nowadays, even when two or three people gather, they will mutter, ‘Where is our country headed?’” bemoans the source. “The state should decide on wages or prices, so the markets can run normally.”

“But since the authorities have been dragging their feet, ordinary citizens have not been able to regain their senses.”

UPDATE 18: According to the Choson Ilbo, the DPRK has banned the entry of foreigners for a period of time and temporarily closed markets:

One source in China said that Pyongyang would bar foreigners from entering the country temporarily at the end or beginning of a year, when customs officials along the border with China are on leave for year-end holidays, but banning them until February is “quite uncommon.”

Experts say this could herald a visit by Kim Jong-il to China, since the paranoid North Korean leader likes to ensure maximum security along the route of his special armored train. Chinese President Hu Jintao invited Kim to visit at a “convenient” time when he met Choi Tae-bok, the chairman of the North’s Supreme People’s Assembly, in October. Kim has visited China four times, and twice (in 2001 and 2006) they fell in January.

But Good Friends, a Seoul-based organization which provides aid to North Korea, in its latest newsletter said North Korean authorities shut down open-air markets for three days starting on Monday after prices of goods soared following the currency revaluation. The North was to reopen the markets after prices adjust.

One researcher with a state-run research institute said, “For North Korea to succeed in its currency reform it needs stable supplies of food and other products, and Pyongyang may have decided that China is the only country it can rely on. That might also make it necessary for Kim himself to visit China.”

More on market closures can be found in Bloomberg.

UPDATE 17: The Daily NK reports that DPRK trading offices and companies on the Chinese border were raided in advance of the currency revaluation to confiscate capital which had accumulated in these offices.  The central government confiscated these resources apparently because they were under the de facto control of various nouveau riche 

UPDATE 16: According to Australian News.com:

North Korea has set new prices for staple goods after its shock currency revaluation, but most items are selling in markets for more than laid down by the regime, an aid group said overnight.

Citing informants in North Korea, South Korean group Good Friends said the new prices were published last Wednesday.

“Few items sell at the state-set prices, and most of them are trading at higher-than-set prices at the markets of major cities nationwide,” it said in a newsletter.

Rice is selling for 50 won per kilogram at markets in the northeastern port city of Chongjin, more than double the state-fixed price of 23 won, it said.

Other staples such as corn, wheat flour and beans are also selling for more than the government price, it said, adding that pork was a cheaper exception.

UPDATE 15: According to the Daily NK it seems the DPRK authorities are taking the week to educate the lower level party members on how the post-currency reform economy is supposed to function.  These are the same low-level party officials who probably bore the brunt of the DPRK’s monetary “reform” initiative:

Meetings and lectures were convened on the 8th to follow-up on the currency redenomination; explaining prices, wage standards, and payments between factories and enterprises.

A source from Yangkang Province reported the news on Wednesday in a telephone conversation with the Daily NK, “A lecture began at 2 P.M. yesterday. It was administrative education for managers of sub-Party organizations, Primary Party Committee secretaries and accounting clerks in factories.”

The source added, “The meeting was scheduled for the evening of the 9th, but if necessary it may continue on the morning of the 10th.”

These kinds of meetings were also held right after the fourth denomination replacement in 1992 and again after the July 1st Economic Management Reform Measure in 2002.

This time around, there are two kinds of lectures; one for cadres, and a separate one for administrative workers.

In the Yangkang cadres lecture there were major Party cadres from the People’s Committee of Yangkang Province, the Agricultural Accounting Committee of the province, People’s Safety Agency, May 16 Construction Bureau (a temporary organization overseeing each province’s construction projects) and Hyesan Steel Mill; office workers from the financial department of the Yangkang Province People’s Committee, accounting clerks and treasurers from factories and enterprises attended the administrative lecture. The lectures were held in the conference halls of the Provincial Party Committee.

The Hyesan Party Committee also reportedly convened lectures for cadres and workers in the same way in the conference hall of the Municipal Party Committee and the Kim Il Sung Revolutionary Ideology Institute in Hyejang-dong.

In the meetings and lectures, provision of payment and modes of transaction between factories, state designated prices for commodities and services and the setting of an upper limit for market prices were all rumored to be on the agenda.

Among them, wage levels and top limits for jangmadang prices are the most noteworthy items.

On the subject of wages, rumors apparently streamed out from around the conference halls; “They will maintain wage levels as was,” and, “Wage levels will be cut in half.”

If wages are maintained, or even cut in half, the monetary value of wages would increase from 50 to 100 times, or at least they would if prices remained the same.

To this end, the North Korean authorities are also expected to announce detailed rules whereby prices in markets may not exceed state-designated levels.

The source explained, “The state’s policy is to build a world where the people can live on their wages. The reason for the decree about the markets is to prevent prices rising.”

However, economists worry about the impact of these policies. If the authorities are not able to expand supply having raised wages substantially, and then they forcefully reduce market prices, in the long run hyperinflation will result and trading will become all-but impossible.

Especially, if the authorities take to printing money in order to pay for projects related to the construction of the “strong and prosperous state,” an unimaginable aftermath will be created.

Meanwhile, the source explained, “In some regions, food prices are already soaring. Traders don’t like this phenomenon, which at least reassures the authorities about the traders’ attitudes.”

However, he pointed out that even when the market works normally, price levels are not particularly stable.

UPDATE 14: The AFP notes that the currency reform has cripped the DPRK’s markets:

Private markets on which North Koreans rely heavily for necessities have been paralysed since the communist state’s shock currency revaluation last week, a report said Wednesday.

South Korea’s Hankyoreh newspaper quoted sources in China’s border city of Dandong as saying private transactions — which supplement the faltering state distribution system — have come to a virtual halt.

“The road linking Pyongyang and Sinuiju has been shut down. It’s been hard to get through to partners in the North by phone,” a Chinese businessman told the independent daily in Dandong, across the border river from Sinuiju.

A North Korean central bank official has been quoted by a pro-Pyongyang newspaper as saying the aim is to weaken the role of free markets and strengthen the socialist system.

Amid reports that some frustrated residents have been torching old bills, South Korean aid group Good Friends said authorities have threatened severe punishment for such an action.

Many residents would burn worthless old bills rather than surrender them to authorities, in order to avoid arousing suspicions about how they made the money, Good Friends said.

The banknotes carry portraits of founding president Kim Il-Sung and his successor and son Kim Jong-Il. Defacing their images is treated as a felony.

 UPDATE 13: Wall Street Journal  offers map of public discontent.

UPDATE 12: Entrepreneurship in China:  “Beijing markets offer counterfeit old N. Korean notes” (Kyodo).

UPDATE 11: Normally currency revlauations are coupled with institutional and organizational reforms to the monetary and public finance systems so that the public will have confidence that the new currency will maintain its value.  This is how inflation is defeated.  The DPRK has not announced any reforms of either the monetary or fiscal systems–in fact they did not even announce the currency conversion–so in addition to people losing their savings they have no expectations that the new currency will retian its value…so of course we will get instant inflation once again and probably worse than the original rate.  According to Bloomberg:

The North Korean won has plummeted 96 percent against the dollar after the government revalued the currency last week, according to reports by Yonhap News Agency and a South Korean aid group.

A North Korean bank in Sinuiju, near the border with China, offered to buy dollars for 35 won on Dec. 7, Good Friends, a Seoul-based rights group, said today on its Web site. Before the currency revaluation, the official rate was about 140 won, and as much as 3,500 won in the black market, Yonhap said.

Following the revaluation, rice prices have more than doubled, Good Friends said. One kilogram (2.2 pounds) of rice cost 50 won as of Dec. 5, compared with 16 won to 17 won on Dec. 2, the group, which obtains information through contacts within North Korea, said in its newsletter yesterday.

One in four school children were absent due to hunger on Dec. 3, indicating how widespread the struggle to find food had become, the group said, without saying how it derived the number.

Caveat Emptor on Good Friends reports. An alternate report claimed that school was ended early to prevent the spread of H1N1.

UPDATE 10: Institute For Far Eastern Studies (IFES)   (NK Brief No.09-12-4-1) 

At 8:00 A.M. on December 2, North Korea began transferring to a new currency throughout the country. According to Daily NK, the order to exchange currency was issued without explanation, as each regional branch of the Korea Central Bank began exchanging notes from 8:00 in the morning. ‘Good Friends’, ‘North Korea Intellectuals Solidarity’, and other defector organizations are reporting that the North is in the process of changing its currency.

North Korean officials first notified residents of the money swap on November 30. Citizens were advised that old notes were to be traded for new money, but there was significant resistance and locals refused, leading officials to issue a new order to exchange currency. The order stipulated that the exchange be carried out at ‘100 to 1’ and that for any family exchanging more than KPW 100,000, any additional monies are to be exchanged at a rate of 1000 to 1. Any remaining currency is to be deposited in the bank, and will be re-issued in new notes at a later date.

If anyone actually has as much as a million won in cash, they would be able to transfer the first hundred thousand into one thousand won of the new currency, and the next hundred thousand would be worth a mere 100 won. The remaining 800 thousand won of savings would have to be turned over to the bank on the promise that it would be accessible at some time in the future at an exchange rate that has not yet been determined. This has been met with considerable controversy within North Korean society.

On November 3, 1992, as the North went through a currency reform, old money was exchanged for new on a 1-to-1 basis, and on a standard of 300 won-per-family. Up to 200 thousand won could be deposited as savings in a local bank, but one month later it was announced that each family could withdraw no more than four thousand won in any three-month period. At the time, when banks failed to return savings to the people, many became disheartened. Markets closed and stalls were shuttered as growing numbers of people became worried that they would be unable to exchange their money for U.S. dollars or Chinese yuan.

Currency traders in Pyongsong markets, which are at the heart of North Korea’s manufacturing distribution network, were reduced to tears. Shoppers stayed at home and business travelers suddenly stopped coming. Rice traders were selling 1 kilogram for 2,200 won at the end of last month, but are now asking as much as 30,000 won (of the old currency). This means prices jumped to almost 13 times as much as they were just three days before the currency swap announcement. Currently, all of the North’s security forces are deployed to restrain the people, and not only have the Peoples’ Security Forces and the National Security Department been put on alert, but even the military has been put on emergency status. A 10:00 P.M. curfew is being enforced, and it has been announced that violators will be dealt with strictly.

With this currency exchange, the North’s middle-class is expected to suffer considerably. This is because the poorest have no savings, and the richest hold dollars or yuan. Food sellers are expected to suffer the most, since food sales across the country are carried out in cash.

UPDATE 9:  Although Good Friends reports have a reputation of being hit and miss, here is their report on the DPRK’s currency conversion.  The usual caveats apply.

UPDATE 8: Here is an English translation of an interview with the head of the North Korean Central Bank (PDF).  I got the interview here. (h/t Adam Cathcart)

UPDATE 7: The Choson Ilbo points out that monetary revaluation has been an on-and-off policy goal of the North Kroean government since 2002:

The large-denomination bills, such as those worth 5,000 and 2,000 won, bear the stamp “2008” on the upper left. Images of the 500, 200, 100, 50, 10 and 5 won bills and those on the back of 1 won, and 50, 10, 5 and 1 jeon coins bear the stamp “2002.”

“It seems that the North printed the new bills and coins in 2002 when it implemented the July 1 economic reform plan, where it introduced a modicum of market capitalism, but decided not to circulate the new currency that year apparently due to runaway inflation,” a source said. “And the North again apparently prepared for currency reform in 2008 by printing new large-denomination bills but postponed the reform because leader Kim Jong-il had a stroke.”

UPDATE 6: The rules continue to change.  According to the Daily NK:

“The maximum amount per household which could be exchanged in cash was initially set at 100,000 won, but overnight it increased to 150,000 won, then subsequently a new decree was handed down.”

“According to the new decree, the exchange rate is still 100:1 for 100,000 won, but now the authorities will only permit people to exchange the rest of the money at 1,000:1.”

As a result, if you take 200,000 won in cash to a bank, you get 1,100 won in new denomination bills. This emergency formula will do nothing other than destroy the fortunes of the people.

Another source reported that in the jangmadang practical trading had ceased, although rice was still on sale from traders dealing in the product from home. The price of a kilogram has apparently skyrocketed to 30,000 won in old denomination bills, a 15-fold increase.

Wealthy merchants generally do their business in Yuan or U.S. Dollars, so the harm to them is not so serious. At the other end of the scale, low end traders who live from day to day will not be hit too hard for the simple reason that they don’t have much cash.

However, people in the middle classes who have tended to hoard paper cash at home are facing a fatal beating.

UPDATE 5: The Daily NK and Yonhap have pictures of the new currency.

UPDATE 4:  According to the Daily NK:

In the three days since the start of the exchange, the authorities have changed the policy a number of times. First they planned to allow each household to exchange 100,000 won; 1,000 won in new denominations. Then they changed it to 150,000 won. Then they changed it again to 100,000 won, plus 50,000 won more per family member in a family of four. That is, a standard household can now exchange a maximum of 300,000 won.

Additionally, the authorities announced an extra new decree whereby one could put the rest of one’s money, which cannot be exchanged into new bills, in the bank.

This near continuous flow of policy amendments has exacerbated public confusion.

Regarding excess monies above the limit for direct exchange, the authorities originally proclaimed that people could exchange it at a 1000:1 rate, but several hours later on the same day, revised it to people being able to deposit 200,000 won in the bank at the 1000:1 rate. However, on the morning of the 3rd, the authorities implied that the state would allow the people to deposit as much as they have, saying, “The whole deposited amount will be dealt with appropriately by the state.”

Naturally, residents do not really believe in what the authorities say because they had a similar experience in 1992; the people deposited 20,000 won, but the banks gave only 4,000 won back the next year.

UPDATE 3: Marcus Noland hits the nail on the head.  He writes in the Wall Street Journal:

North Korea announced a surprise currency reform this week. The move isn’t about good economics, however; it is yet another stratagem by the central authorities to short-circuit the development of an entrepreneurial class independent of the state.

Currency reforms are not a bad thing in principle. Stable governments historically have used this tactic to draw a line under bad economic policies of the past, often after taming a hyperinflation. Good reforms typically involve knocking zeros off the old paper and issuing new currency, perhaps at approximate parity to major currencies such as the dollar or the euro to make it easier for citizens to hold their government accountable for macroeconomic performance. In recent years Turkey and Ghana, among others, have successfully implemented such reforms.

What occurred Monday in North Korea is different. Unlike a Turkish or Ghanaian-style reform, in which all citizens are encouraged to convert all their holdings of the old currency, the North Korean regime limits the amount of currency that can be converted. This renders excess holdings worthless, and has set off the frenzy this week to get out of old won and into anything else—dollars, Chinese yuan, physical goods—that will maintain value. Any economic “reform” also creates opportunities to parcel out benefits, as with a 2002 price and wage reform that favored the military.

This move is part of Pyongyang’s broader effort to curtail the rise of market activities and the development of pathways to wealth—and potentially power—beyond state control. Participants in North Korea’s bootstrap capitalism include everyone from laid-off factory workers to government officials who exploit their inside knowledge to deal privately in everything from grain to imported Chinese consumer goods.

In a society so highly atomized by the government, a private-sector market would be one of the few ways for North Koreans to interact with each other away from the state’s watchful eyes. So it stands to reason the regime would be worried about the market quite apart from any subversion of the state’s own economic machinery. Roughly every decade since the founding of the country in 1948, the government has initiated a currency reform or similar policy to confiscate the savings and working capital of private entrepreneurs.

There appear to be several particular spurs for the latest “reform.” North Korea relies on local production for about two-thirds of grain consumption, with most of the rest coming through aid. The recent harvest was reportedly poor and world grain prices are rising. This makes farmers more likely to divert food from government procurement to the black market. United Nations sanctions also are disrupting the country’s finances, affecting everyone and reducing the supply of luxury goods the regime dispenses as favors to supporters.

The upshot is that, despite both the currency reform and the legal crack-down on the private economy, the regime is not succeeding in stamping out the market entirely. The fact that Pyongyang has to keep trying indicates that North Koreans keep trying even harder to scrape together better lives for themselves. But the sheer ruthlessness of the Pyongyang regime and its extraordinary capacity for repression underline just what an uphill battle those North Koreans face against a regime determined to keep them down.

Also here are some more details from the Choson Ilbo:

Sources in North Korea say people have been told that money above the individual exchange limit must be deposited in banks, but the state also limits individual deposits to between 300,000 to 3 million won, and people are not allowed to freely withdraw money from their accounts. This has apparently stoked tremendous anger.

During the last currency reform in 1992, authorities permitted each person to deposit up to 20,000 won in the bank, but they were later allowed to withdraw only a few thousand won. Many were unable to withdraw any money at all.

Read previous posts on this topic below:

UPDATE 2:  According to China Daily (h/t Michael Rank):

Pyongyang’s first revamp of the won in 17 years will render the currency useless, say some Chinese traders, but experts said the revaluation will not heavily affect trade.

As of yesterday, the Democratic People’s Republic of Korea (DPRK) revalued its currency, the won, at an exchange rate between old and new notes of 100 to 1, according to a Xinhua News Agency dispatch from Pyongyang.

The exchange of old notes will continue until Sunday, according to the news agency. It is unknown whether the new 1 won will have the same purchasing power of 100 old won.

“I have collected DPRK notes through trades over the years,” said an anonymous Chinese trader in Hunchun, Jilin province, to China Daily yesterday. “I have no idea about the purchasing power of the new notes. I’m afraid the notes I have will become valueless paper.”

The trader declined to reveal how much he owns in the DPRK unit. Hunchun is a trade hub bordering China and the DPRK.

“The revamp sends my confidence about the currency, if any, to rock bottom,” the trader said.

The Euro is commonly used in trade between China and the DPRK. The yuan, instead of the won, is popular in border trade, said Su Hao, an expert in East Asian affairs at Beijing-based China Foreign Affairs University.

The won has been slumping for many years, from 300 won to more than 600 won against 1 yuan, according to the trader.

Abd the trader is not alone in his trepidation, said Shi Hongjun, a customs official in Hunchun.

“We heard about the news last (Monday) night, which is abrupt,” he said. “It cracked the nerves of many Chinese traders and they called in yesterday to ask what’s really happening.”

China’s foreign ministry spokesman Qin Gang said the nation hopes that bilateral trade will keep moving when asked to comment on the DPRK move.

Ji Jiahu, a Hunchun official, told China Daily yesterday that border trade is continuing as usual. Seafood and timber from the DPRK are delivered to China for daily consumer goods.

In general, “the currency revamp will not affect Sino-DPRK trade,” Su said. “It’s only a denomination change.”

Shan Jie, a trader in the border city of Dandong, Liaoning province, said Chinese traders in the city generally do not accept the won, so “the impact will be minor to them”.

As a major goods supplier to the DPRK, China exported $1.36 billion worth of goods from January to October, the latest figure available on the Ministry of Commerce’s website. Last year, Chinese exports to its neighbor amounted to $2 billion.

A Hong Kong-based analyst also said the move appeared to affect the DPRK’s domestic market more than foreign trade.

“The revamp is obviously intended to curb the country’s mounting inflation and black-market trading,” said Kim Hyun-geun, a Hong Kong-based analyst at Okasan Securities.

Official figures about the inflation in the DPRK are not available, but Kim said it was 25 to 30 percent.

The move to remove two zeros from the nominal value of the won came after a currency slump after economic reforms were introduced in 2002.

The reforms, to make wages and prices more realistic and introduce limited market freedoms, were largely rolled back in 2005. Authorities have lately been clamping down on free markets.

UPDATE 1: According to the Wall Street Journal:

The revaluation was announced Monday over a cable-broadcast system that can’t be monitored outside the country. North Korea issued new notes with an exchange value of 100 to 1 — an old 1,000 won bill, for example, becoming a new 10-won note — and said people could make exchanges from Tuesday to Saturday.

The revaluation was confirmed Tuesday by China’s state-run news agency, Xinhua, which has an office in North Korean’s capital, Pyongyang. Xinhua quoted one store clerk as saying that state-run stores in the city are closed this week so employees can reprice goods.

It is the latest and most sweeping step by the North Korean regime to rein in an unofficial economy that has grown in recent years and is perceived to threaten the grip of dictator Kim Jong Il, the government and the Workers Party.

For more than a year, reports from aid groups and media outlets that specialize in North Korea have described crackdowns on markets that operate unofficially but became the center of economic activity when the state-run distribution system broke down after a famine a decade ago.

The move will have little economic impact outside the country since the North Korea won isn’t used for trade and isn’t recognized for exchange by any country, even China, its chief trading partner and political benefactor.

Merchants in the Chinese city of Dandong, the most active border crossing with North Korea, said Tuesday that North Korean trading partners had told them about the revaluation but that they didn’t know the details. Trade on the China-North Korean border is mainly conducted in U.S. dollars and euros, so the Chinese traders said they weren’t expecting much impact on their business.

Inside North Korea, the economic impact of the revaluation is difficult to gauge since there has been no official data about the size of the North Korean economy or its banking system since the 1960s.

Until now, the won has traded officially at 135 per U.S. dollar. But defectors say that in North Korean border cities, where foreign currency is most necessary, the won has generally traded at about 2,000 to 3,000 per U.S. dollar. A typical North Korean earned about 5,000 won a day, aid workers and defectors say.

Initial reports indicated the government would allow only 100,000 old won to be exchanged for new. That would potentially wipe out the holdings of people who have earned and saved in won from market activities for years. Those who have saved in foreign currencies — which, though not illegal, is difficult for ordinary North Koreans — would appear unaffected.

According to the Washington Post:

Amid widespread protests, the limit was slightly raised to 150,000 won (about $60) in cash and 300,000 won ($120) in bank savings, according to DailyNK, an online news organization that has informants in the North.

China’s Xinhua news agency said in a report from Pyongyang that state-run shops were closed Tuesday as sales staff posted new prices on goods.

The exchange of old currency for new began Monday and will end on Sunday, Xinhua said, adding that the government did not explain why the revaluation had occurred.

According to the New York Times:

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 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.

ORIGINAL POST: According to the Choson Ilbo:

North Korea on Monday announced it is replacing its practically worthless currency at a rate of one new won to 100 old won as of Tuesday. The impoverished country has already conducted five currency reforms, the last one in 1992, all of them during transition periods or when it felt it needed to tighten control.

There is speculation that the latest currency reform comes both to tighten the regime’s hold and to bring runaway inflation under control amid apparent efforts to prepare for the succession of North Korean leader Kim Jong-il’s third son Jong-un.

A source in North Korea said news that the currency replacement will begin at a rate of one new won to 100 old won on Tuesday was suddenly announced throughout North Korea and caused “great confusion.” Authorities say they are replacing the currency to remove “economic imbalance” after private farmers’ markets mushroomed and the gap between rich and poor widened, the source said.

South Korean intelligence services are analyzing information.

According to the Daily NK:

In a surprise move, the North Korean central bank has revalued and replaced its national currency as of today, according to several sources.

One source relayed that from 2 P.M. the old paper currency started being exchanged for a new one, while another source from Pyongyang claimed that the switch began at 11 A.M.

The exchange rate for the new currency is 100:1, so old 1,000 won bills are being exchanged for new ten won bills.

Regarding the purpose behind the currency reform, one source suggested, “It looks like an attempt to control inflation, but it may have the side effect of making consumer reliance on dollars or Yuan rise due to a loss of confidence in the value of the North Korean currency.”

Another source agreed, “Since the July 1st Economic Management Reform Measure in 2002, prices have skyrocketed. Since Chosun (North Korea) money has lost its value, the authorities have undertaken this currency reform.”

The North Korean authorities convened urgent meetings this morning to distribute information on how the currency should be exchanged.

A source in North Hamkyung Province told The Daily NK, “This morning, there was a decree to people’s units. When the news spread in the jangmadang, people panicked.”

A Sinuiju source reported, “Traders gathered around currency dealers. Chaos ensued when currency dealers tried to avoid them.”

Dandong and Yanji, bases for smuggling into North Korea, were also full of confusion.

Choi, a Korean-Chinese trader in Dandong said, “All trade with North Korea ceased. Telephone lines are busy now with North Korean dealers trying to obtain Yuan.”

According to the AFP:

The North issued new banknotes in 1949, 1959, 1979 and 1992 but the denominations remained unchanged except in 1959 when new notes were exchanged for old at a 100-to-1 rate.

Yonhap said the main aim appeared to be curbing inflation because the currency’s value had slumped since economic reforms were introduced in 2002.

The reforms, to make wages and prices more realistic and introduce limited market freedoms, were largely rolled back in 2005. Authorities have lately been clamping down on free markets in an apparent attempt to reassert the regime’s control.

Yonhap said the North may also have wanted to flush out funds from the underground economy, including money from citizens working abroad.

The country is mounting a national campaign to rebuild its crumbling economy by 2012, the 100th anniversary of the birth of its founder Kim Il-Sung.

Yang Moon-Soo, of Seoul’s University of North Korean Studies, said authorities aim both to tame inflation and to trace citizens who have amassed wealth either legally or illegally.

Those who feared punishment would have to bury their illegally earned money, he told Yonhap. “There will be less cash circulating in the market and more government control of the people.”

According to Yonhap:

North Korean sources who engage in trade with China in the eastern Chinese city of Shenyang told Yonhap News Agency that the North Korean government implemented the currency reform as of 11 a.m. Monday and the exchange for the new currency began at 2 p.m.

The sudden revaluation shocked the local market, the North Korean sources said.

“Many citizens in Pyongyang were taken aback and in confusion. Those who were worried about their hidden assets rushed to the black market to exchange them with yuan or U.S. dollars. The yuan and the dollar jumped,” one of the sources said.

Foreign embassies in South Korea confirmed the report, saying their missions in Pyongyang received a verbal notice of the revaluation by the North’s Foreign Ministry on Tuesday. The use of the old denominations has already become “difficult.”

“We have heard from the British embassy in Pyongyang that it has become difficult to exchange North Korean currency in shops in Pyongyang since yesterday,” Kate English, spokeswoman at the British embassy in Seoul said. “There was an oral briefing from Pyongyang for all diplomatic missions today.”

The latest reform appeared to be mostly aimed at tackling inflation as the value of the local currency has nosedived since the country enacted economic reforms in 2002 to make payments and prices more realistic and to introduce market freedom. North Korea also may have sought to flush out money hidden in the underground economy, some stashed by citizens working abroad.

South Korean officials said they could not yet confirm the report. North Korean media have remained silent, in contrast with their usual custom of making an official announcement on the day past currency reforms have taken effect.

“There have been no reports so far of a currency reform in North Korean media,” Unification Ministry spokesman Chun Hae-sung said. “We checked the state media today, including the Rodong Sinmun, but there was no such report.”

No signs of the currency reform were detected yet in joint industrial projects, such as the factory park in the North Korean border town of Kaesong, where South Korean investors pay North Korean wages in dollars, the spokesman added.

Yang Moon-soo, an economy specialist at the University of North Korean Studies in Seoul, said he believes the currency reform has both economic and political aims. North Korea wanted to shed heavy inflationary pressure, and in the process of exchanging the denominations, the government would be able to discover and question those who have amassed wealth, he said.

“In economic terms, the government will be able to retrieve banknotes that people have amassed in their own coffers,” Yang said. “In that process, those who have legally or illegally stashed a large amount of money will be exposed to the government, and those who fear punishment will have to bury their illegally earned money. There will be less cash circulating in the market and more government control of the people.”

“North Korea appears to have carried out the reform so secretly and suddenly that no one could prepare for it,” Dong said.

“But public reaction could be much stronger than the government has expected, because this shuts the door to the growing trend of ordinary people stashing money personally from their market activities,” he said. “Most high-class people have their money in dollars or yuan.”

Good Friends, a humanitarian aid organization in Seoul, said in a bulletin posted on its Web site that shops, public bathhouses and restaurants in the North were mostly closed, and long-distance buses were not operating. Public anger mounted as the maximum amount of the new currency allowed for exchange was limited to 100,000 won per person, it said.

“I worked like a dog for two months for the winter, but the money became useless paper overnight,” the bulletin quoted a resident in Sinuiju, a city that borders China in North Phyongan Province, as saying.

Key dates in the DPRK’s monetary history (Yonhap):

Dec. 1947 — Months after establishing its Soviet-backed government separately from pro-U.S. South Korea in September, North Korea conducts its first currency reform, ending the monetary legacy of Japan’s 1910-45 colonial occupation of the Korean Peninsula. The reform replaced banknotes issued during the colonial era with new notes issued by the North’s Central Bank on an one-to-one principle.

Feb. 13, 1959 — The second currency reform takes effect to curb inflation caused by the 1950-53 Korean War, refresh the financial management system and equip the government with investment resources for state-led post-war development. The exchange rate was 100 to 1.

April 7, 1979 — The third reform is implemented with a 1 to 1 rate. Government institutions, businesses and cooperative organizations deposited their reserves of old denominations in banks and received new banknotes.

July 15, 1992 — The fourth reform takes effect with the aim of consolidating the local currency system. The Central Bank begins issuance of five types of new banknotes valued at 100 won, 50 won, 10 won and 1 won. The exchange rate was 1 to 1.

Nov. 30, 2009 — North Korea reportedly conducts its fifth currency reform, sharply raising the value of its currency in an apparent bid to tackle inflation and curb black market trading. The exchange rate for the new currency is allegedly 100 to 1, in which the old denomination of 1,000 won is replaced by the new 10 won.

A U.S. dollar was equal to 135 won in North Korea’s fixed foreign exchange system before adjustment.


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