Sudden Redenomination May Make People's Lives Harder
Media reports said that North Korea has abruptly introduced currency reform, adding that the present unit began to be exchanged for a new one at a rate of 100 to 1 on Monday. The reform means that the old denomination of 1,000 won is being replaced by the new 10 won. The Seoul government has yet to confirm the redenomination, which is seen as the first of its kind in the North since 1992, as the North stopped short of making an official announcement on the issue to the outside world.
Now the question is: Why has Pyongyang suddenly taken such a step? Analysts said the redenomination seemed to be designed to bring the country's runaway inflation under control. In fact, the value of the North Korean won has plunged since the communist country initiated ``economic reform'' in 2002 to make prices more realistic and introduce market freedom on a limited basis to inject fresh air into its dilapidated economy.
The unusual move is also apparently aimed at drawing out money hidden in the underground economy. The North Korean authorities have long forced its diplomats and businessmen residing abroad to faithfully send money back home, a move intended to ease a lack of hard currency. But many of them allegedly stashed large sums of funds and brought them into the North upon returning home. These funds have remained out of government control and were circulated on the black market.
It also can be inferred that the currency reform is intended to crack down on mushrooming markets across the rigid socialist state. According to recent press reports, the North Korean government was trying to shut down some markets in major cities, although such attempts have backfired in many cases. With hereditary leadership succession allegedly under way, the Kim Jong-il regime certainly wants to unwind its limited economic reform in order to tighten its grip on power and go back to outdated socialist principles.
In this regard, the North seems to be gambling economically and politically with the redenomination. The world's last Stalinist country is now facing an acute shortage of food. A few million of people now face a famine. The Kim regime has already reduced food rations, forcing many people to get food at the sprawling markets. Therefore, concerns are growing that a crackdown on markets and the currency reform may have negative implications on the living conditions of the people as well as the moribund state-controlled economy.
The reports said the redenomination immediately took many North Koreans aback and caused confusion. Many people who had stashed funds, especially in illicit ways, rushed to convert their money into the Chinese yuan or the U.S. dollar on the black market, Monday, out of fear that their hidden assets could be revealed if they were to exchange them into the new denomination. And some will keep their money in their own coffers in a bid to avoid possible punishment for illegally amassing wealth. Thus, it is inevitable to see a sharp fall in the circulation of cash. This will contribute to easing inflationary pressure, but make people's lives harder in the already impoverished economy.
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