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2009/12/10 11:40 KST
NORTH KOREA NEWSLETTER NO. 84 (December 10, 2009)

*** TOPIC OF THE WEEK (Part 2)

North Korea Belatedly Confirms Currency Reform

SEOUL (Yonhap) -- Putting days of swirling rumors and speculation to rest, a pro-Pyongyang newspaper based in Japan confirmed on Dec. 4 North Korea's first currency redenomination in 17 years, saying a currency exchange program began on Nov. 30 and got underway across the nation for one week.

   "In line with a state measure, new banknotes issued by the Central Bank were exchanged for old bills across the nation," Choson Sinbo, North Korea's mouthpiece outside the reclusive country, reported. "The swap was to continue at neighborhood currency exchange booths till Dec. 6."

   The exchange rate was 100 to one, but bank deposits will receive benefits of a 10 to one rate in a policy to encourage savings that can be used for national development, the newspaper said, adding the Central Bank has issued notes in amounts of 5,000 won, 2,000 won, 1,000 won, 100 won, 50 won and 10 won, while lower denominations are in coins.

   Choson Sinbo ran images of the new banknotes that feature a portrait of the communist country's late founder, Kim Il-sung, and the birth places of Kim Jong-il and his mother, Kim Jong-suk.

   Citing a senior central bank official, the newspaper reported that North Korea seeks to tighten control over its mushrooming free market and turn around its sickly economy through the currency revamp.

   "We believe the government's ability will strengthen, while the role of the market, which has functioned as a supplement, will gradually weaken," Jo Song-hyon was quoted as saying in an interview with the Tokyo-based paper. It said its branch in Pyongyang conducted an interview with Jo on Dec. 3.

   "The main purpose of this currency revamp is to raise the value of our currency and smoothen its circulation" so as to enliven the socialist order and improve the people's livelihoods, the bank official said.

   In 2002, North Korea introduced free markets in a bid to help improve its dilapidated economy. But the reform was rolled back five years later amid soaring prices and no signs of economic recovery. A kilogram of rice, for example, was set at 44 won by the government in the 2002 economic reform, but has since spiked to 2,500 won in free markets, according to Good Friends, a Seoul-based aid group that frequently visits the North. In July, North Korea shut down its biggest free market in Pyongsong, north of Pyongyang.

   In a rare admission of the North's bleak situation, the official said the country has suffered the combined effects of international sanctions, natural disasters and the fall of the communist bloc since the 1990s.

   "The imperialists' vicious isolation and suffocation maneuvers against us, subsequent natural disasters and the fall of the socialist market have posed great impediments to the normal economic development of our country," Jo said.

   He further said curbing burgeoning free market trade is a necessary step to achieve the country's campaign to build a strong socialist nation in three years. North Korea, which depends on international food aid to help feed its 24 million people, has set the target year for economic revival at 2012, the birth centennial of Kim Il-sung.

   In an apparent attempt to minimize fallout from the shock currency overhaul, North Korea is widely believed to be stepping up publicity efforts to increase public awareness of the change-over and is taking other follow-up measures.

   The Daily NK, a Seoul-based Internet newspaper that specializes in North Korea's internal affairs, reported on Dec. 7 that North Korean authorities were waging a massive campaign to publicize the monetary reform.

   "Using a nationwide cable radio system and vehicles equipped with speakers, North Korea began the propaganda blitz from Dec. 2, three days after its currency was redenominated, to publicize that the move is a socialist reform for the sake of workers and farmers," Daily NK said, citing sources in North Pyongan Province.

   The cable radio broadcast stressed that the currency reform is designed to help smoothen and normalize the economy, opening the way for North Korea to build a powerful and prosperous nation, according to Daily NK. On top of the publicity drive, North Korean authorities also ordered all factories across the nation to hold public relations sessions and debates over the currency reform.

   The online newspaper also reported on Dec. 6 that the North's central bank and finance ministry were to hold a meeting of working-level, regional financial officers soon in oder to issue administrative guidelines.

   According to North Korea watchers in Seoul, the currency redenomination has had a boomerang effect on the isolated country as it seems to be failing to serve its intended purpose of keeping galloping inflation in check.

   Good Friends, which has sources inside North Korea, said on Dec. 7 that North Korea's consumer prices in terms of the new currency were showing signs of skyrocketing in street markets. "A kilogram of rice, which sold for 16-17 won in markets in Pyongyang and other cities on Dec. 2, soared to 50 won a day later.

   A kilogram of rice, set at 44 won by the government in 2002, spiked to around 2,200 won shortly before the currency reform.

   Good Friends also said in its Dec. 9 bulletin that North Korea has set a new exchange rate of 35 won against the U.S. dollar. Before the currency revamp, one U.S. dollar was 140 North Korean won, but the greenback fetched as much as 3,500 won on the black market.

   With signs of runaway inflation emerging, North Korea was expected to soon announce government-set prices for rice and other daily necessities amid rising uncertainty due to the absence of state guidelines, a Seoul-based radio station reported on Dec. 8.

   "Due to the unexpected currency overhaul, residents were experiencing uncertainty as all business transactions remained volatile," Open Radio for North Korea reported, citing informed sources in the communist country. "The authorities were likely to make public state-set prices soon."

   The surprise monetary reform is widely believed to have made North Koreans disgruntled and frustrated as they were left with wads of worthless bills.

   Citing an unidentified North Korean resident, the Daily NK reported on Dec. 3 that angry citizens set piles of old bills ablaze at two separate locations in the eastern coastal city of Hamhung after the currency revamp was conducted.

   It quoted the resident as saying he saw graffiti and leaflets condemning North Korean leader Kim Jong-il in and around a college in Hamhung. A merchant couple in their 60s also killed themselves in North Hamgyong Province after hearing of the currency revaluation, according to the Daily NK.

   "However, there seem to be no organized activities protesting the currency reform despite reports of an accidental murder case, distribution of anti-Kim Jong-il leaflets and a graffiti incident," said Ha Tae-kyung, president of Open Radio for North Korea.