N. Korea revalues currency to fight inflation

SEOUL | North Korea sharply raised the value of its currency Tuesday by issuing new notes absent some of the zeroes in a move apparently aimed at curbing inflation and black-market trading.

The change forces North Koreans to exchange 1,000-won notes with a new 10-won bill this week, according to North Korea specialists in Seoul and media reports.

The currency revaluation was announced at 11 a.m. and the exchange for the new currency began at 2 p.m., Seoul’s Yonhap News Agency said in a dispatch from the Chinese city of Shenyang, not far from the North Korean border.

The surprising measure immediately caused panic among North Koreans who were keeping money in their homes instead of placing it in state-controlled banks, it said.

“Those who were worried about their hidden assets rushed to black markets to exchange them for Chinese yuan or U.S. dollars,” the news agency said, adding that the measure has caused “great confusion.”

South Korea’s biggest newspaper, Chosun Ilbo, said the Norths authorities told residents that the currency reform was conducted to “remove economic imbalance after private farmers’ markets mushroomed and the gap between rich and poor widened.”

North Korea’s state media have yet to confirm the currency revaluation. Seoul’s Unification Ministry said it was still checking the reports. “We have seen no official announcement by North Korea on the reported measure,” a ministry spokesman said.

If confirmed, the currency revaluation would be the first since 1992 and the fifth since the Democratic Peoples Republic of Korea, the North’s official name, was founded in 1947. The country issued new banknotes in 1949, 1959 and 1979. The 1959 reform was the only redenomination with an exchange of a 100-to-1 rate.

The communist nation has relied on food aid since its economy collapsed in the mid-1990s.

The introduction of some market elements into the strictly controlled command economy in 2002 is said to have helped trigger an inflationary price spiral.

The price of rice today is about 3,000 North Korean won per 2.2 pounds. A North Korean’s average monthly salary is 2,000 to 3,000 won. One U.S. dollar officially equals about 135 North Korean won, but buys about 3,000 won on the black market because of inflation.

Under the 2002 reform package, called “July 1 measures for economic management improvement,” North Korea allowed prices and exchange rates to float and permitted individuals and enterprises to run for-profit operations in the country.

The North has also phased out a decades-old food rationing system and public distribution system, which forced people to get most of their food and basic necessities in markets.

Cho Bong-hyun, a North Korea analyst at the Industrial Bank of Korea in Seoul, said this week’s currency evaluation will enable authorities to flush out money hidden in the underground economy.

“The currency redenomination is aimed at tracing citizens who have amassed wealth,” Mr. Cho said.