All cash transactions in North Korea have been frozen after the Government’s shock decision to revalue the won currency in an effort to crack down on the country’s burgeoning free-market economy.
In the capital, Pyongyang, today only the few shops and restaurants permitted to trade in foreign currencies, patronised by the privileged elite and the city’s small foreign population, were open for business.
All other enterprises and services based on cash, including markets, long-distance bus services, barbers, saunas and bath houses, have been suspended until the revaluation is completed next week.
There was confusion after the announcement of the measure, which requires North Koreans to swap existing won notes with new ones at an exchange rate of one to 100, knocking two zeroes off their value. There is a cap of 100,000 won (£419) per family, which means that anyone with significant holdings of cash will have their savings wiped out.
“Loud sounds of weeping in every house have not ceased since the news was released,” one South Korean news website quoted an inhabitant of the city of Sinuiju, near the Chinese border, as saying. "Weeping and fighting between couples has not stopped anywhere. The atmosphere of the city is terrible now.”
The website, the Daily NK, citing similarly unnamed sources, said that one elderly couple had killed themselves in North Hamgyong, a province adjacent to the Chinese border across which much illegal trading is carried out. It also reported anxiety among local officials that the currency revaluation would provoke civil unrest.
But a western diplomat in Pyongyang said that, apart from the closed-up shops, the announcement had had no visible effect on the city. North Korea is one of the world’s most tightly controlled and brutal totalitarian states and public dissent is almost unknown.
The announcement was made on Monday via a closed cable broadcasting system which is piped into all North Korean homes, and reserved for public announcements and state propaganda.
It has not been reported in the state media, but it was confirmed the following day in briefings to foreign diplomats in Pyongyang who were summoned to the country’s foreign ministry at 20 minutes' notice.
“It came as a great surprise to everyone,” one western diplomat in Pyongyang told The Times. “Everything literally closed – no notice given. When we made enquiries we discovered it was because the currency was no longer valid. It’s really quite dramatic.”
Households have been told that if they surrender their cash holdings this week, they will be given the new notes from next Monday. Some reports suggested that, after protests from members of the elite, the limit on cash exchange had been raised to 150,000 won, plus 300,000 won in bank deposits which would be made available after investigation into its source.
“One of the worries our North Korean staff have is whether they will have enough food to get through to next week,” the manager of a foreign organisation in Pyongyang said. “Our employees have access to foreign currency, but most people don’t and they could be in trouble.”
Reliable information about the North Korean economy is difficult to come by, but the move appears to have two purposes. One is to control price inflation by limiting the amount of cash in circulation. The other is to destroy the fortunes of black-market traders, money changers, and others who have been profiting from North Korea’s nascent free-market economy.
Officially, the North Korean state provides for the needs of all its citizens through the state-run Public Distribution System. But after the famine of the late 1990s, when several million people starved to death because of floods and crop failures, North Korea took tentative steps towards liberalising its economy.
In the early 2000s, large-scale markets were officially established, and buying and selling by individuals was tolerated. But the benefits of this were felt unevenly, bringing new prosperity to rural areas but even greater hardship to those parts of the country such as the northeast which traditionally relied on now defunct heavy industries.
People in these areas have compensated by smuggling consumer goods across the porous northern border with China. But in a society that presents itself as a perfect socialist state, overseen by the paternal wisdom of the “Dear Leader” Kim Jong Il, the existence of growing inequality between the poor and a new entrepreneurial middle class is undermining the Government. Over the past year, the authorities have clamped down on unofficial buying and selling and closed down the country’s biggest market in the Pyongsong suburb of Pyongyang.
The revaluation is not expected to affect the small number of foreign embassies and aid organisations that operate in Pyongyang. Foreigners are not allowed to trade in local currency and must spend foreign currency. The official exchange rate is 190 won to the euro, but the black market rate is 2,000 won and upwards.