The Ministry of Unification has concluded that the currency redenomination implemented by the North Korean government two years ago was, as is already widely accepted, an utter failure in most regards.
According to the ministry, which revealed its assessment today, North Korea intended to use the currency redenomination to weaken the role of the markets, generate supplies of capital for the construction industry and adjust the amount of domestic currency in circulation, but ended up achieving the opposite.
Instead, the overall economy slowed, while markets have now made a comeback, recovering to their state they were in before the event.
The process was simple. Straight after the currency redenomination, the flow of commodities rapidly froze up due to contracting supply and weakening purchasing power. According to the Ministry of Unification, factories and enterprises that relied heavily on materials and capital from the market were fatally undermined. This immediately added to extant difficulties securing daily necessities, and forced the authorities to tolerate the markets once again. Commodity flows are still in the process of recovering.
But worse, the value of the domestic currency fell and people’s preference for US Dollars and Chinese Yuan deepened further, setting exchange rates and prices in a continuously increasing inflationary spiral.
This can be seen in the case of rice, a good proxy for overall economic conditions. In 2009, rice cost between 20 and 40won, but within a year had increased abruptly to approximately 1,500won, and as of November, 2011 was more than 3,000won. Despite the 100:1 ratio of the redenomination, prices have returned to their level before the currency redenomination.
The North Korean authorities even attempted to ban the use of foreign currency in January, 2010, causing various problems which resulted in the withdrawal of the plan in the following month. In December, 2009, a US Dollar was worth 35 North Korean won, but by a year later had soared to 2,000 won, and is currently worth 3,800 won.
The North Korean authorities said the currency redenomination would improve the lives of the people, but in truth because of hyperinflation people’s lives have actually gotten more difficult.
At the time of the currency redenomination, they emphasized care for the common worker, giving them wage increases and cash payments; a one-off bonus (500won per person) to laborers and an additional payment to farmers (150,000won per person). However, nominal wages subsequently increased 100 times, and with a lack of food, necessities and soaring inflation, made the people’s lives worse.
The average worker’s salary is now 3,000won, but the living expenses of a family of four are approximately 100,000 won per month.
In conclusion, an official from the Ministry of Unification declared, “As long as there is deepening popular distrust of the North Korean authorities, it looks like the power to implement future policy will weaken. The decisions made by the authorities that decreased the quality of people’s lives deepened the distrust.”
“The seizure of property, which in the short term alleviated polarization, ended up causing more poverty among the general population and had a relatively minor effect on the people who hold a lot of foreign currency.”
“North Korea tried to restore their socialist economy via the currency redenomination, but in reviewing the comments and perspectives of various North Korea experts and defectors we can see that the currency redenomination was an overall failure.”
That being said, he noted, “There is a limit to the ability of collective discontent to turn into collective political organizing.”