On Nov. 30, North Korea redenominated its currency, the won, without prior announcements, and reportedly banned the use and circulation of foreign currencies after Jan. 1.
The direction of this decision seems opposite that of the “economic reform” carried out by Pyongyang in July 2002. At that time, prices and wages were raised several dozen times from earlier levels; some private markets, including farmers’ markets, were allowed; and enterprises with self-supporting accounting systems came into being.
According to North Korean central bank authorities, 100 old won are now worth 1 new won, and old bills will become worthless unless exchanged for new ones. Old bills saved in government-run banks are to be exchanged at the rate of 10 old won to 1 new won. Price levels will drop to the levels prevailing before the 2002 reform.
It has been reported that the North Korean government raised the limit on the amount of old bills that can be exchanged with new bills from 100,000 old won to 500,000 old won per person, to appease people angered by the redenomination and that all old bills deposited in banks will be exchanged into new bills. But it is unclear how much people can withdraw from banks.
After the 2002 economic reform, some North Koreans became rich through market activities, and inflation set in. The currency redenomination is apparently aimed at curbing inflation and stemming corruption involving merchants and officials. More important, though, it is reported to be the government’s attempt to hit people who accumulated wealth through business activities and to take control of the economy from the merchants.
North Korea plans to make the country a “strong and prosperous nation” by 2012. To achieve this, it appears to be strengthening state-run shops and the rationing system. Markets have spread through much of the country and become indispensable for many people. Strangulation of private markets will block the distribution of goods, including food, and won’t contribute to enhancing people’s welfare.
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