Residents Indifferent to 5000 KPW Swap

Daily NK has learned that the recent 5000
KPW note exchange has prompted an overall apathetic response from residents in
North Korea. As Daily NK first reported here on July 31st  the North Korean authorities informed
residents that the largest denomination monetary unit would be replaced with a
new bill.

US Dollars and Chinese Yuan being the
currencies of choice in the markets, the recent collection and exchange of the
highest denomination bill “doesn’t really affect people’s lives.”

A source in the capital reported to Daily
NK on August 14, “A new [5000 KPW] note has been issued, but the exchange of
old to new notes hasn’t made much headway.” This is hardly a nuisance to most
residents, who are used to adapting, she went on to explain. “People are fairly
indifferent about the new 5000 bill, and anyone who expresses concern about it is
considered to be a fool by others.”

Production of the new 5000 KPW notes began
last year; at the end of July 2014, the Chosun Central Bank announced that
residents would have until 2017 to exchange the old bills. “At first, residents
didn’t know what the exchange rate would be when they converted to the new
bills, so a bit of chaos ensued; once they found out it was a 1:1 exchange
rate, things have been pretty quiet of late,” she explained. “The number of
residents holding 5000 KPW notes is pretty low so there isn’t an atmosphere of
concern surrounding the matter.” The source did add that it cannot be verified
at this time if those in rural or farming areas are equally as impervious to
the matter.

The source cited two chief factors
underpinning this resident indifference: trust in the authorities continues to
decline, as does the value of North Korean currency.

The 5000 KPW bill is the largest
denomination of bill in North Korean currency, but when compared with foreign
currencies like Chinese Yuan or US Dollars, its value is dismal, considered by
most to be “wastepaper.”  By current
exchange rates, 1 USD is equal to 8000 KPW; in other words, the largest note in
North Korea [5000 KPW] is less than 1 USD or equal to approximately 5 RMB. 

Moreover, at current market prices, 5,000
KPW [6000 KPW per kilo] is  insufficient
for people to purchase a kilo of rice or a dozen eggs [5000 KPW yields six eggs
at present]. “Even when people buy a block of tofu [700 KPW], they use dollars,”
the source explained. “Because merchants only do business in US Dollars of
Chinese Yuan, people save all their money in these currencies.”

Citing the 2009 currency reforms, she
explained the shift in public sentiment on the KPW,  “People won’t suffer any losses even if there
are 10 more currency reforms. Even those in poorer, rural areas regard North
Korean currency as something for ‘use by the state’ and keep their assets in
rice and other goods. ”

This shift in attitude of  North Korean currency as “means of exchange”
to “means of savings” occurred during and after the Arduous March [the North Korean famine of 1994-1998]. After ceasing distribution of  regular food rations, starvation quickly
became rife. In order to minimize dependency on a broken state system, people
sought to build assets by saving as much KPW as possible.

Tragically, those savings were reduced to
worthless scraps of paper during the currency reforms in 2009.The goal of the
currency redenomination of November 30, 2009 was officially to bring inflation
under control and eliminate monetary overhang, but the result of the 100:1
redenomination was catastrophic. This led to a complete transformation in
resident commercial activity. The North Korean residents lost complete faith in
state-issued banknotes and adopted foreign currencies, namely Chinese Yuan and
US Dollars, as the preferred legal tender for business transactions.

“Because KPW is ‘not even worth counting’,
there are more and more people who don’t care about the new 5,000 won bill,” she
went on. “Instead of curiosity or trepidation as to the motivations behind the
exchange, people just feel reassured by holding onto foreign currency.”

Once the privilege of traders and Party
officials working abroad, accessibility to these  foreign currencies has trickled down to
market vendors and young students. Daily NK has recently learned that markets
in all major cities in the North even provide small change back to customers in
US Dollars and Chinese Renminbi.

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