North Korea Launches a Banknote Reform

1 12 2009 Dec. 2 – North Korea has abruptly revalued its currency by a huge margin and restricted the amount of old money people can exchange for new bills prompting reports of rioting in its capital, Pyongyang.

The measures are intended to stomp out burgeoning black market trading by effectively wiping two zeroes off the value of North Korea’s currency, the won. The hermit state moved further to choke illegal currency trading by only allowing about 100,000 to 150,000 old won to be exchanged for the new notes. The new rules sent people desperate to exchange their won for the U.S. dollar and Chinese renminbi even at lower black market rates.

According to Daily NK, a dedicated North Korean online news site, the  maximum amount per household which could be exchanged in cash was changed to 150,000 won but a new decree now states that authorities will only permit people to exchange the rest of the money at 1,000:1 although the exchange rate is still 100:1.

North Koreans who kept cash on hand to help them survive lean months effectively saw their savings massively diminished. “As people rushed to swap money, commercial activities have virtually come to a standstill.” Good Neighbors, a Seoul-based relief agency, said in a statement. “The purpose of the reform is to kill private market activities that stoked anti-socialism.”

Another Day, Another Damaging Currency Decree

By Lee Sung Jin [Daily NK 2009-12-02]

Currency exchange finally started across North Korea at 8 o’clock this morning. The changeover is supposed to have been completed by the 6th, and from the next day the new denominations are due to enter circulation. There have been some delays to implementation of the exchange, including a delay to the day the new notes enter full circulation.

However, several inside sources have reported that every county branch of the Chosun (North Korea) Central Bank has now started exchanging old money. In the meantime, resident sentiment turned aggressive once the details of the proposed exchange became clear, and now the North Korean authorities have revised those details once again.

A source explained, “On December 1st at 10 A.M. an urgent meeting for cadres of Party and Administrative Committees was convened. As a result of that meeting, a new decree was released.” “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.