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(5th LD) N. Korea revalues currency for first time in 17 yrs: sources

All Headlines 20:23 December 01, 2009

(ATTN: ADDS public anger at bottom, TRIMS)
By Kim Hyun

SHENYANG, China/SEOUL, Dec. 1 (Yonhap) -- North Korea has sharply raised the value of its currency, its first monetary reform in 17 years, in an apparent bid to tackle inflation and curb black market trading, sources said Tuesday.

North Korean sources who engage in trade with China in the eastern Chinese city of Shenyang told Yonhap News Agency that the North Korean government implemented the currency reform as of 11 a.m. Monday and the exchange for the new currency began at 2 p.m.

The exchange rate for new currency is 100 to 1, in which the old denomination of 1,000 won is replaced by the new 10 won, the sources said, speaking on strict condition of anonymity. According to the North's fixed exchange rate before the adjustment, a U.S. dollar was equal to 135 North Korean won.

The sudden revaluation shocked the local market, the North Korean sources said.

"Many citizens in Pyongyang were taken aback and in confusion. Those who were worried about their hidden assets rushed to the black market to exchange them with yuan or U.S. dollars. The yuan and the dollar jumped," one of the sources said.

Foreign embassies in South Korea confirmed the report, saying their missions in Pyongyang received a verbal notice of the revaluation by the North's Foreign Ministry on Tuesday. The use of the old denominations has already become "difficult."

"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," Kate English, spokeswoman at the British embassy in Seoul said. "There was an oral briefing from Pyongyang for all diplomatic missions today."

The revaluation was the first for North Korea since 1992 and the fifth since its government was founded in 1947. In the first reform in 1947 and the third in 1979 and fourth in 1992, currencies were exchanged 1 to 1 with no adjustment of denomination values. Only the second reform in 1959 raised the exchange rate to 100 to 1 as in Monday's move.

The latest reform appeared to be mostly aimed at tackling inflation as the value of the local currency has nosedived since the country enacted economic reforms in 2002 to make payments and prices more realistic and to introduce market freedom. North Korea also may have sought to flush out money hidden in the underground economy, some stashed by citizens working abroad.

North Korea is promoting a nationwide campaign to rebuild its economy by 2012, the birth centennial of Kim Il-sung, the country's founder and father of the current leader Kim Jong-il.

South Korean officials said they could not yet confirm the report. North Korean media have remained silent, in contrast with their usual custom of making an official announcement on the day past currency reforms have taken effect.

"There have been no reports so far of a currency reform in North Korean media," Unification Ministry spokesman Chun Hae-sung said. "We checked the state media today, including the Rodong Sinmun, but there was no such report."

No signs of the currency reform were detected yet in joint industrial projects, such as the factory park in the North Korean border town of Kaesong, where South Korean investors pay North Korean wages in dollars, the spokesman added.

Yang Moon-soo, an economy specialist at the University of North Korean Studies in Seoul, said he believes the currency reform has both economic and political aims. North Korea wanted to shed heavy inflationary pressure, and in the process of exchanging the denominations, the government would be able to discover and question those who have amassed wealth, he said.

"In economic terms, the government will be able to retrieve banknotes that people have amassed in their own coffers," Yang said. "In that process, those who have legally or illegally stashed a large amount of money will be exposed to the government, and those who fear punishment will have to bury their illegally earned money. There will be less cash circulating in the market and more government control of the people."

Dong Yong-sueng, a North Korea analyst with the Samsung Economic Research Institute, an arm of Samsung Group, said North Korea appears to be trying to normalize its financial sector as part of its 2012 economic reconstruction campaign, but the sudden, drastic implementation could prompt a public backlash.

"North Korea appears to have carried out the reform so secretly and suddenly that no one could prepare for it," Dong said.

"But public reaction could be much stronger than the government has expected, because this shuts the door to the growing trend of ordinary people stashing money personally from their market activities," he said. "Most high-class people have their money in dollars or yuan."

Good Friends, a humanitarian aid organization in Seoul, said in a bulletin posted on its Web site that shops, public bathhouses and restaurants in the North were mostly closed, and long-distance buses were not operating. Public anger mounted as the maximum amount of the new currency allowed for exchange was limited to 100,000 won per person, it said.

"I worked like a dog for two months for the winter, but the money became useless paper overnight," the bulletin quoted a resident in Sinuiju, a city that borders China in North Phyongan Province, as saying.


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