The Market Will Be Back

Bona Kim and Chris Green  |  2010-01-28 16:20
[imText1]New York -- The market is going to come back, says Marcus Noland, deputy director of the Peterson Institute for International Economics and a leading expert on North Korean economics.

Noland made his prediction in a lecture, The winter of their discontent: Pyongyang attacks the market, given to The Korea Society in New York on January 27th, a follow-up to Nolands recent scathing critique of North Koreas currency redenomination co-written with Stephen Haggard.

The event was held to help listeners better understand the currency redenomination and its implications for the North Korean economy and society. But in Nolands opinion it is simple, and the economic implications of the reform are fairly straightforward: negative, and guaranteed to inflict misery on the North Korean people.

The North Korean currency redenomination is unparalleled in other states, Noland believes. It was sprung on the population, he said, They were given one week to turn over their currency but, most critically, it was confiscatory in nature. Unlike any other currency reform, in the case of North Korea, there were very severe limits put on the amount of currency that could be converted, and as a consequence, in effect, what happened was the government destroyed some unknown share of the money supply.

In a country with a very under-developed financial system like North Korea, most, not only households but, importantly, businesses operate in cash, Noland went on, And when you destroy the value of the cash, you destroy the value of savings, and you have destroyed the working capital of all these entrepreneurs in the market.

Fundamentally," he explained, "this was a policy about asset leveling and about attacking the market, destroying the financial basis of people operating the economy outside state control, an attempt to dismantle the market, force resources back into the state-run sector and rebuild socialism."

However, thankfully, there is a silver lining in the survival instincts of the North Korean people. The North Korean people have demonstrated absolutely extraordinary resilience over the last twenty years, Noland reminded listeners, It is unlikely that even this government could bring to bear the degree of repression that would be necessary to eliminate the market economy. So the market is going to come back.
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