One year ago today, the North Korean authorities launched a currency redenomination which produced limitless confusion and bitter complaints across North Korea. Now, The Daily NK looks back on the last year and contemplates the lasting effects of November 30, 2009.
The redenomination, carried out 17 years after the fourth currency redenomination of 1992, was an attempt to eliminate free-market tendencies and claw back money circulating in private hands.
Looking back, it seems intended to try and restore the socialist economic system prior to Kim Jong Eun’s emergence and through that to gain the popularity necessary for the third generation succession.
However, due to unprecedented inflation, there was a cacophony of complaints about the measure, and the aftermath became the biggest hurdle in the Kim Jong Eun succession project.
For example, although the authorities devalued the currency by 100:1, rice, which was selling for 44 won per kilogram right after the redenomination, had already soared to 1,500 won three months later in Hoiryeong, North Hamkyung Province.
Even worse, the authorities allowed each household to exchange 100,000 won in old currency and save the rest in banks. This measure, aimed at drawing currency into the banks, also added to people’s difficulties, added to inflation and reduced amounts of currency in circulation.
The authorities prohibited general markets immediately after the redenomination, but allowed agricultural markets to open once in ten days. Additionally, they launched a “50-Day Battle” to sweep out free market elements on the orders of the National Defense Commission.
The intention behind the redenomination and additional measures can be seen in a Chosun Shinbo interview with a Chosun Central Bank official, Cho Sung Hyun, early in December last year. According to Cho, “In the past, since the state was not able to guarantee the materials it planned for factories, some markets were allowed. Now, as state ability is strengthened, the role of markets, which have played an ancillary role, will be weakened.”
The authorities also banned foreign currency usage, in an apparent attempt to attack hidden funds which wholesalers and middlemen had accumulated.
However, the authorities lifted the ban on general markets and allowed trading in most products as of February 1st because the aftermath of the redenomination was proving unfavorable. It was a de-facto declaration that anti-market policies had failed.
Thereafter, the authorities used the execution of former Director of the Planning and Finance Department Park Nam Ki, and other officials lined up as scapegoats for the redenomination fiasco, to try and halt social conflicts, but the effects lingered.
Im Eul Chul, the director of the Center for International Cooperation on North Korean Development, explained the background to the measure yesterday, saying, “At that time, even though North Korea had high demand for the purposes of establishing the succession system and a strong and prosperous state by 2012, due to international sanctions and bad inter-Korean relations following the second nuclear test, state revenues were in a dire state.”
Im went on, “Through domestic deposits, the authorities were guaranteed more revenue, but the effect didn’t last long because the value of the currency had declined. Additionally, the effect of expand revenue was quite limited because the authorities were not able to control the significant foreign currency traders held by traders, even though they had taken the general people’s money.”
A further anonymous expert on North Korea believes that the purpose of the redenomination was the reorganization and normalization of the regime through the expansion of its financial capacity.
“It was to weaken the economic activities of all large scale traders besides the regime,” the expert explained. “From the regime’s point of view, they intended to reorganize power (in the markets) by giving a blow to bigger traders, but in consequence, smaller scale traders (who could barely get-by on selling) faced difficulties.”
The side effects of the currency redenomination still have yet to settle. Inflation has become a chronic problem; rice in Pyongyang is still around 900 won, while the average salary of a general worker is around 1,500 won a month, and is not paid regularly.
The failure of the currency redenomination is even one element in the backdrop to the Yeonpyeong Island attack, according to one researcher from the Network for North Korean Democracy and Human Rights, Kim Young Hwan.
Kim said, “It is impossible to feel favorable toward Kim Jong Eun, who has appeared in an extremely dire situation caused by the failure of the redenomination,” and added, therefore, “As Kim Jong Il considers the succession project his priority, he has used this drastic card in order to raise military tension between North and South for internal solidarity.”
He went on, “During the process of Kim Jong Il’s succession, almost no one was against it, but in the Kim Jong Eun case, most people are displeased.”
“Internal economic conflict caused by the failure of the redenomination will be a long-lasting pain in the neck,” Kim concluded.