Korea: Even Communist Despots Can Dream

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December 10, 2009: North Korea's recent revaluation of its currency (100 old won get you one new won) was done to deal with rampant inflation, and to destroy the rising power of people who have made lots of money in the legalized markets. This is what caused the inflation, as not enough new goods were allowed into the country to absorb all that new wealth. Thus there was inflation, as more money chased fewer goods. This drove up the price of food. In a market economy, farmers could have increased output in response to higher prices. But the government controls farming, and continues to make a mess of it. The currency exchange also enabled the hard line communists in the government to wipe out those who sought to improve their economic situation (only Communist Party members are allowed to do that).

The legalizing of the black market activity (since 2003, initially just for food) disturbed many government leaders. They saw the growing wealth of entrepreneurs as a danger to communist control of the country. The entrepreneurs could now bribe officials (who have also been wiped out by the currency change). So for the last year, the government has been shutting down the markets, and seeking to find and arrest corrupt officials.

But a lot of the new wealth was not kept in the form of North Korean currency. Foreign currency (Chinese and American especially, even if a lot of it is counterfeit) and goods (everything from tons of food, to apartments and even kilos of methamphetamine, each of which sells for about as much as it costs to "buy" a state owned apartment from its current occupant) have long been preferred as a way to store ones wealth. This is not the first North Korean currency exchange. There was a 1:1 exchange in 1992. No one really trusts the North Korean won, because the government just prints as many as they want (which is the main cause of inflation.) This is the first currency exchange for inflation, since 1959. For half a century, the government tightly controlled the economy, and inflation was not a problem. Now the hard liners in the government want to get back to the good old days. That won't be happening. But even communist despots can dream.

In the last year, much detail, on Iranian arms smuggling activity has been uncovered, and this has revealed that there has been a large (thousands of tons a year) trade in North Korean weapons being sold and shipped to Iran. This activity has been largely secret, but new sanctions on Iran and North Korea have enabled more aggressive investigation of Iranian and North Korean exports. Thus many deceptions have been revealed. Iran has been a large source of hard currency.

The public response to the currency exchange has been low key, but there is visible anger. Suddenly, there's a lot more anti-government graffiti on walls, even in very public places. Students have been seen handing out anti-government leaflets. There is unrest, but the security forces are still very much in control. The government has eased the pain of the currency exchange by allowing those foreigners, and North Koreans, who are considered useful to them, to exchange larger amounts of cash.

December 5, 2009: North Korea issued orders to border guards to shoot on sight if they detect anyone trying to leave the country without permission. This appears to be in reaction to the recent currency exchange, which wiped out the savings of hundreds of thousands of entrepreneurs. Many of these people are angry, desperate, and willing to risk all to get into China, and make a new start.  

December 4, 2009: The North Korean government has told people with more won, than they can legally exchange for new won, to deposit any additional old won into government bank accounts. Some, or all, of this might be converted. Many people are unwilling to let the government know how much cash they had, and don't trust the bureaucrats to actually exchange more old won.

November 30, 2009:  In the north, the government announced that the currency was being changed, with 100 old won being exchanged for one new won. The catch is that each family can exchange no more than 100,000 old won in cash (for 1,000 new won), or 200,000 old won in bank accounts. A hundred thousand old won will buy you half a kilo (1.1 pounds) of rice. On the black market, you 3,000 old won can be exchanged for one U.S. dollar.

The uproar quickly unnerved the government, and the limit was raised to 150,000 in cash and 300,000 in bank accounts. But this was a pittance, for the market reforms of the last decade have enabled hundreds of thousands of people to acquire large amounts of cash (too much money in a bank account would attract the secret police). Apartments were selling for over 30 million old won, while a gram of methamphetamine cost 60,000 old won.  

November 28, 2009: Japan launched another spy satellite, joining three it already has up there, to keep an eye on North Korea, and China.

 

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