North Korea set about blitzkrieg currency reform on November 30th for the first time in 17 years. But it was not the first time overall. In fact, since 1974 North Korea has attempted redenomination five times. What marks out all of the reforms, however, is their extremely rapid nature.
The most recent changes took place in November, 1992. At the time, the exchange rate between the old and new currency units was pegged at 1:1. At the time, the largest denomination was 100 won. The banks in North Korea exchanged up to 300 won per person to persons over 17. Up to 20,000 won of additional money per individual was received by banks as savings, but anything exceeding this was entirely invalidated.
In reality, the whole thing served as a pretext by which the North Korean authorities could funnel out the pocket money of their citizens. The money kept in savings was held until March of the following year, and then each household was allowed to withdraw up to 4,000 won. However, the rest was ultimately kept by the banks, which claimed insolvency.
The sudden currency exchange plunged North Korea into chaos. Merchants who had not prepared in advance and Chinese emigrants could be found around university dorms and the living quarters of Shock Brigades, persuading those who did not have money to make exchanges on their half. They gave 300 won to each and compensated them to the tune of 100 won.
The people who experienced the heaviest losses were the Chinese-North Koreans in North Korea as merchants. At the time, they mostly held a significant sum of North Korean currency to facilitate their trade in the country.
However, the North Korean authorities absolutely refused to convert the North Korean currency in the possession of foreigners.
Consequently, these Chinese merchants dumped their currency holdings into the Yalu and Tumen Rivers or burned them, simultaneously pouring out a barrage of invective towards Kim Il Sung and Kim Jong Il in front of North Korean citizens.
Nevertheless, and despite the 1992 currency conversion, the value of North Korean currency continued to decline into the 2000s, so the North Korean authorities had no choice but to print additional large denomination notes.
The 500 and 1,000 won notes were introduced in 2002. In 2005, the 200 and 5,000 won notes were added. The year the latter went into circulation is known as being 2002, which was also the sixtieth anniversary of the founding of the North Korean state, but the truth is that the year of issuance was 2005.
Regular redenomination and the printing of high value notes have naturally resulted in declining confidence in North Korean currency. Recently, among the North Korean well-to-do classes, the trend of hoarding assets in gold, US Dollars, Euros or Yuan due to concerns over the plunging value of North Korean currency has become widespread.
It is almost inevitable that the currency reform of November 30th will follow in the footsteps of past currency reforms, most likely resulting in further reduced confidence in the North Korean currency and heightened reliance on foreign currency holdings, whilst doing nothing to address the underlying causes of inflation in the highly distorted North Korean market economy.
