North Korea's War on Markets

Posted by: Ihlwan Moon on December 21, 2009

Three weeks after North Korea redenominated its currency on Nov. 30, few outside experts can say with authority what’s really going on there. Confusion lingers as to just how much of the existing currency can be converted into new notes. Also, North Korea watchers have been unable to confirm reports (by independent South Korean aid groups) of soaring prices for food and daily necessities, as well as angry traders protesting the exchange limit that makes much of their holdings worthless.

The secretive nation of course doesn’t usually give out details on policy moves. Yet one thing appears clear: more North Koreans have been involved in market activities than previously realized. And Pyongyang’s campaign to crack down on the newly emerging class of rich merchants has had a greater social and economic impact than the authorities had expected.

Cho Myungchul, a former economics professor at Kim Il Sung University in Pyongyang who is now working as a researcher at a South Korean think tank, thinks that North Korean policymakers may now be adjusting their plans to implement the currency reform. That’s because they need to find a balance between their goal of controlling the market but at the same time maintaining a level of popularity as they push through a plan to groom North Korean leader Kim Jong Il’s son, Kim Jong Un, as the next leader.

Early this month, North Korea’s official media said Pyongyang on Nov. 30 introduced new notes that remove two zeros from the value of the North Korean won. At the same time, they ruled that each family can only exchange up to 100,000 won into the new notes. Later reports by aid groups that the ceiling has been revised upwards to as much as 500,000 won, could not be confirmed. The aid groups also quoted unnamed North Korean residents as saying that they could convert additional old notes as long as the money was being kept in banks; that was not true for the cash kept instead at home, a widespread practice.

North Korea watchers have said the recent currency redenomination is designed to curtail the unofficial economic sector that is threatening to undermine the regime’s security. Merchants operating in the non-state controlled markets have been responsible for the spread of popular South Korean soap operas, to cite just one example. And Pyongyang sees those as exposing its people to subversive capitalist ideas.

Recent history however shows that Pyongyang’s attempts to control the markets have failed. And North Korea also badly needs materials from outside to make its factories hum again. But giving up control is the last thing the Pyongyang leadership can afford to do. The nation has defied widespread predictions of collapse for nearly two decades and has survived economic sanctions, thanks largely to the leadership’s extraordinary capacity to repress and control the population.

The big question is whether North Korean policymakers will be able to find a compromise between their two conflicting needs: The country needs the markets as the state doesn’t have the money to dole out the necessary food rations nor other necessities. The markets, however, are bound to loosen government control over North Korean society. The new currency policy is only the latest act. Expect more surprises ahead.

Reader Comments

One Who Prays

December 26, 2009 8:06 PM

Our Father, who art in heaven, hallowed be thy name. Thy kingdom come, thy will be done, on earth as it is in heaven. Give us this day our daily bread, and forgive us our trespasses as we forgive those who trespass against us, and lead us not into temptation, but deliver us from evil, amen.

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December 28, 2009 10:41 PM

Bill Simpson in Slidell

January 6, 2010 9:37 AM

You have got to feel sorry for the North Korean population. First Japan invaded them. Next that commie nut starts the Korean War. Then they are ruled by his crazy little kid that lets millions of them starve. And there is no end in sight. What a waste.

William Caxton

January 21, 2010 5:41 PM

Most people have forgotten that Communist China stopped the UN (mainly U.S. forces) from saving the North Korean population from the North Korean government and inflicted serious casualties on U.S. British, Australian, Canadian, South Korean and drove the back to the 38th parallel. And it's possible that the Russian-equipped North would never have invaded the South had the U.S. equipped the South Korean army with tanks and heavy artillery in the first place, apparently because the Truman administration didn't trust Syngman Rhee with the means to invade the north. Now South Korean per capita income is approaching Canada's, on account of third world immigration to that supposedly rich country.

bruno bauer

April 6, 2010 8:29 PM

Alexandre Kojeve, Francis Fukayama, and Hegel were right -- there is an inexorable world movement to democratic capitalism. The North Korea dictator had even to submit to the indignity being a "President" (for eternity, of course). It won't be much long before this last petty tyranny falls to capitalism. China and Russia were the final major obstacles to the advance of democratic capitalism (and the terms "democratic" and "capitalism" are redundant. Hang in there Wall Street!

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