* DECEMBER 2, 2009
North Korea Reissues Won, a Blow to Unofficial Economy - WSJ.com
North Korea Reissues Won, a Blow to Unofficial Economy
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By EVAN RAMSTAD
SEOUL -- North Korea redenominated its currency for the first time in 50 years and limited how much old money could be traded for new, likely wiping out millions of residents' savings and much of the cash used in market activities frowned upon by its authoritarian government.
The action triggered chaos in the isolated country on Monday and Tuesday, according to news outlets in South Korea that specialize in obtaining information from the North. Millions of people rushed to banks and offices of the ruling Workers Party to get information, make exchanges or trade existing North Korean won for euros and U.S. dollars.
[Korea] Bloomberg News
100 won bank notes
North Korea has issued new currency four previous times since it was founded in 1948, most recently in 1992, usually at times of financial distress. But it has also used new currency issues as a political weapon, by limiting how much can be converted or distributing new notes unevenly, says Marcus Noland, a senior research fellow at the Peterson Institute for International Economics in Washington.
"It's basically a way of rewarding your friends and punishing your enemies," Mr. Noland says.
The government announced the move Monday, using a closed-circuit broadcast system that can't be monitored outside the country. It said the old currency could be traded for new at a rate of 100 to 1 -- with a 1,000 won bill, for example, becoming a 10-won note -- marking the North Korean won's first redenomination since 1959. It said it would make exchanges from Tuesday to Saturday.
The action appears to be 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's government.
North Korea's unofficial economy started on a small scale amid famine a decade ago, when the state-run distribution system broke down and people began selling goods and food from homes and farms. Sizable markets grew in nearly every town and city.
By this year, the sprawling Pyongsong market on the outskirts of North Korea's capital, Pyongyang, was believed to host 30,000 small vendors. The massive complex provided an alternative to the government-led economy as well as a place where the elite from the capital could meet North Koreans who weren't allowed into the restricted city.
Over the past year, say aid groups and North Korea watchers, the government has cracked down on these markets. They say authorities have forced women, who more often than men are found selling goods in markets, into work at state-run factories and farms. In June, the government closed Pyongsong.
"It's another way of limiting, harassing and punishing people who have had the bad political sense to engage in market activity," said Nicholas Eberstadt, political economist and North Korea scholar at the American Enterprise Institute in Washington.
The redenomination was reported in South Korean media early Tuesday and confirmed later by China's state news agency, Xinhua, which has an office in Pyongyang. Xinhua quoted one store clerk as saying that state-run stores in the city are closed this week so employees can reprice goods.
Initial reports indicated the government would allow only 100,000 old won to be exchanged, likely wiping out the holdings of people who have saved for years from market activities. Those who have saved in foreign currencies -- which, though not illegal, is difficult for ordinary North Koreans -- appear unaffected so far.
According to NKNet, a Seoul-based Web service focused on North Korea, people in Pyongyang pressed party officials Monday night to allow more money to be exchanged. In response, according to the report, officials lifted the exchangeable amount to 150,000 won in cash and 300,000 won in savings accounts.
Officially, the North Korean won trades at 135 per U.S. dollar. But defectors say it is routinely traded in North Korean border cities, where foreign currency is most necessary, for 2,000 to 3,000 per dollar. A typical person in the impoverished country may earn only about 5,000 won a day, aid workers and defectors say.
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.
—Jaeyeon Woo in Seoul and Gordon Fairclough in Shanghai contributed to this article.
Write to Evan Ramstad at email@example.com