The exchange rate between old and new currencies is 100 to 1
In an alleged bid to curb inflation and suppress its growing black market, North Korea implemented a currency revaluation on Monday, according to Yonhap, the South Korean news agency.
The exchange rate between old and new currencies is 100 to 1, with the old denomination of 1,000 won notes being replaced by 10 won notes.
It is the first time in 17 years that the hermit kingdom has revalued its currency and the effect in the capital was instant. “Many people were taken aback and confused,” said one source to Yonhap. “Those were were worried about their hidden assets rushed to the black market to swap them for dollars or Chinese yuan. The yuan and the dollar jumped,” he added.
“When the news spread in the jangmadang (markets), people panicked,” reported the Daily NK newspaper, quoting a source in the North Eastern province of North Hamkyung. Another source, in the Western city of Sinuiju, on the border with China, told the paper: “Traders gathered around currency dealers. Chaos ensued when currency dealers tried to avoid them.”
A spokesman at the British embassy in Seoul said that North Korea had given verbal notice to foreign missions in Pyongyang on Tuesday and that it was already hard to use the old notes. “We have heard from the British embassy in Pyongyang that it has become difficult to exchange North Korean currency in shops in Pyongyang since yesterday,” he said.
Officially the North Korean won trades at 135 to the US dollar.
However, in practice, the won trades at between 2,000 and 3,000 and can spike above 20,000 if there is a shortage of dollars on the market.
The North issued new banknotes in 1949, 1959, 1979 and 1992 but the denominations remained unchanged except in 1959 when new notes were exchanged for old at a 100-to-1 rate in the wake of the Korean war.
While the main aim of the revaluation may be to curb inflation, there was also speculation that the North Korean government wanted to flush out funds from the underground economy.
Yang Moon-soo, an economics professor at the University of North Korean studies in Seoul, said the North Korean government wanted to discover and question any citizens who have amassed wealth.
“The government will be able to retrieve banknotes that people have stashed in their own coffers,” he said. “There will be less cash circulating in the market and more government control of the people,”he added.
By Malcolm Moore, in Shanghai
Published: 12:29PM GMT 01 Dec 2009
Source: The Telegraph