By The North Korean regime has found a new way to raise capital, by robbing their own citizens:
North Korea has shocked its entire population with a sudden announcement that it will replace its currency with new notes that drop two zeroes from the denominations. The new North Korean currency’s official exchange rates will increase by a hundredfold. The move is causing widespread outrage, panic, and a run on U.S. and Chinese currency. North Koreans throughout the country and at every socioeconomic level are reacting with shock, tears, and anger. According to some reports, people are literally weeping in the streets, as the regime reacts by filling them with police and soldiers. [One Free Korea]
One Free Korea has more on this issue here and here as well.
What the regime has cleverly done is give everyon 5 days to hand over their old currency for the new one and are only allowing people to exchange up to the equivalent of US$40. So anyone who have had savings of more than that in the old currency are screwed. Could you imagine the upheaval in the US if the government tried to do something like this? As Nicholas Eberstadt points out this is not even the first time North Korea has reevaluated their currency to rob their own citizens.
The first thought that came to mind when I heard this is that wouldn’t this effect the regime elite who Kim Jong-il depends on to stay in power more than anyone else? Not really though if they were tipped off on the oncoming currency change and swapped their old North Korean dollars for Chinese Yuan or US dollars. This means that this announcement is likely a shot at the North Koreans making money through the various blackmarkets running inside North Korea outside the control of the central government. These are the people who will lose out big time with the currency reevaluation unless these traders were trading in their North Korean dollars for Chinese yuan anticipating the currency reevaluation.
Over at Kushibo’s blog he wonders if this could lead to resistance agains the regime:
To me, the tipping point for revolution in North Korea is when a critical mass of people in the DPRK realize that they are more likely to die if they do nothing than if they try to do something. [Monster Island]
I don’t think this will lead to resistance or a collapse of the regime, but is just another crack in the in the inevitable slow collapse of the regime. The regime elite will likely not be effected by this while a growing state competitor, the people making money from the markets take a hit. Sure plenty of poor people who have saved up money to make it through the winter will likley starve, but when has Kim Jong-il care about that? Does anyone know if $40 can get a North Korean family through the winter? If not maybe these people will take their $40 and head to China instead.
12:18 pm on December 4th, 2009 1
The Chinese are a little pissed about all of this, but no word yet that the currency redenomination is causing uptick in refugees into the PRC.
1:07 pm on December 4th, 2009 2
I bet there is probably plenty of traders along the border holding North Korean currency that are going to take a big loss from this. I don’t think an uptick in refugees would be noticeable any time soon though. I think if this winter if people are running out of money to buy food they may start crossing over the border then.
3:13 pm on December 4th, 2009 3
GI Korea wrote:
I don’t think this will lead to resistance or a collapse of the regime, but is just another crack in the in the inevitable slow collapse of the regime.
I think this is a different matter than before. I elaborated on this a bit more here (a disjointed piece of work), but I think that there is a different situation in North Korea right now compared to, say, the currency reform or the famine of the 1990s.
Unlike in the 1990s, people have a greater means to get outside the country to a now-affluent China just across the river, pop culture and impressions of a better life from South Korea beckon them, and most importantly, plenty of time has passed since the death of the Great Leader and the Dear Leader is increasingly seen as inefficacious.
Moreover, KJI may have wiped out the savings of the cadres out in the provinces, and that may have reset the calculus for reaching critical mass of dissent. Local party cadres have seen the rug pulled out from under them, and they suddenly have far less stake in the regime’s continued control. To put it another way, at what point will they become like the East German border guards who do not shoot at people trying to get over the wall… or into the storehouse, or out of the prison, or whatever.
The regime elite will likely not be effected by this while a growing state competitor, the people making money from the markets take a hit. Sure plenty of poor people who have saved up money to make it through the winter will likley starve, but when has Kim Jong-il care about that? Does anyone know if $40 can get a North Korean family through the winter? If not maybe these people will take their $40 and head to China instead.
Enough people heading to China can also cause an implosion, à la East Germany, particularly if China seems Pyongyang’s blunder as causing a bigger headache than usual for them.
That’s what Dr Norbert Vollersten has been counting on for some years now.
Maybe it’s time for Seoul and Washington to give reassurances to Beijing that, say, there won’t be any US bases in what had been the DPRK.
3:16 pm on December 4th, 2009 4
I think you’re right about that. There are reports of people making angry public displays (burning the old cash, for example), but the real effect will be over time.
But I believe this has created a widespread dissent that, even though it came with great suddenness, will not be easily dissipated. In fact, I don’t know what the KJI regime could do to dissipate it and still be the KJI regime.
3:22 pm on December 4th, 2009 5
Adam, any idea what the Chinese might do since they’re so pissed?
In 2002, when North Korea unilaterally (i.e., without permission from Beijing) decided to set up all of Shinŭiju as a free-trade zone with Western governance (hermetically sealed from the rest of the DPRK, of course, à la Hong Kong), China responded by arresting the China-born Dutch citizen who was the governor-designate, Yang Bin.
5:10 pm on December 4th, 2009 6
Just curious – what greater means do they have now that they didn’t have in the 1990s?
Only a tiny fraction (1-2%) of those defecting to China are thinking beyond the simple goal of getting something to eat to stave off starvation. Pop culture and South Korea are so far down the list, they aren’t even worth mentioning.
5:23 pm on December 4th, 2009 7
The problem is that this time, there’s no one (e.g., no Yang Bin) to arrest! Of course a crackdown on general corruption in Jilin province is already ongoing, and ginseng farmers are getting rousted for buying illegal North Korean root:
http://adamcathcart.wordpress.com/2009/11/17/cross-border-crackdowns/
But that was before the currency changes.
You’re absolutely right, though. China may be upset, but all they can do at this point is continue with what they’ve been doing: occasional insults and upbraids in the news media, coupled with encouragement of North Korean baby steps. Who knows? Perhaps realists inside the bland and consensus-obsessed CCP are seeing the currency restructuring as at least a sign of interest by Kim Jong Il in restructuring the economy. I translated part of a Chosun Ilbo editorial by a Chinese economist today that seems to argue as much:
http://adamcathcart.wordpress.com/2009/12/04/sinuiju-updates-north-korean-news-from-china/
Thanks to GI for his original post; it seems I need to get over to Kushibo’s Monster Island next.
5:28 pm on December 4th, 2009 8
This reminds me of that M*A*S*H episode from way back when everyone in the 4077th had to turn in their military script before a certain deadline to get newly issued script, thus putting the blackmarketeers out of business. Of course, the rapid devaluation in the hours before the changeover brought out the cupidity in everyone — particularly people like Major Winchester and Burns — who IIRC, became comically stranded in between camps while conducting last minute deals, which caused them to make a mad dash for the camp before the deadline, lest they be left with piles of worthless military script. Do you think KJI watches M*A*S*H and perhaps got the idea from this episode? Does anyone else remember this episode?
6:27 pm on December 4th, 2009 9
Do not remember the MASH episode, however have been involved in several reissues of military script. Once in Japan, and once in Vietnam, could have been another in Korea, but memory is foggy. I do remember people giving me “script” to exchange for them. A few hundred dollars at most. Being a regular patron at the bar and a friend of the mama san, I said sure. Did the deed and returned the new script to mama san. Did I hurt anyone? I don’t think so. May have saved Mama san from losing the bar. Don’t know. Don’t remember if I even got anything in return, although a couple free beers would have been more than I would have asked for. I was not a bright child.
6:40 pm on December 4th, 2009 10
“Only a tiny fraction (1-2%) of those defecting to China are thinking beyond the simple goal of getting something to eat to stave off starvation. Pop culture and South Korea are so far down the list, they aren’t even worth mentioning.”
I suppose this is something to keep in mind for those of us who tend to privilege “soft power” in changing the DPRK. A belly full of beef is far more persuasive than some nebulous curiosity about hair gel and songs about sex.
7:17 pm on December 4th, 2009 11
“This means that this announcement is likely a shot at the North Koreans making money through the various blackmarkets running inside North Korea outside the control of the central government.”
Bingo. They’ve already started closing the official markets. These business owners were probably starting to gain some clout, both economic and political. The government is probably trying to muscle out the competition in the black markets (given the North Korean government is a criminal enterprise, it’s safe to bet that family members and friends of its members are behind the black marketing). Is it an indication that the government is loosing its grip? Maybe so. Putin did something similar, but the people he felt threatened by were oil billionaires and media tycoons, not small business owners and black marketeers.
7:19 pm on December 4th, 2009 12
Difference though between the Germany comparison is that the North Koreans have to not only exit North Korea but also traverse through China that is clamping down on the defectors in order to get to a third country before getting to South Korea. So even if North Korean border guards ignore defectors crossing which reports now show many guards are already it still doesn’t mean the flow of defectors will be great enough to cause a collapse anytime soon if the Chinese launches a strict crackdown on the border.
Now if more border guards along the DMZ ignore defectors crossing then this theory would definitely have more validity in causing a near term collapse.
7:22 pm on December 4th, 2009 13
“Moreover, KJI may have wiped out the savings of the cadres out in the provinces, and that may have reset the calculus for reaching critical mass of dissent. Local party cadres have seen the rug pulled out from under them, and they suddenly have far less stake in the regime’s continued control. To put it another way, at what point will they become like the East German border guards who do not shoot at people trying to get over the wall… or into the storehouse, or out of the prison, or whatever.”
At the rate they are going, I’m considering moving all my investments from Korean won to gold…But, to answer your question…I give them one winter after Kim Jong il dies, maybe two if he dies in Fall.
7:34 pm on December 4th, 2009 14
What reports show North Korean border guards are ignoring defectors crossing into China? I don’t believe that for a second.
There’s a set price required to pay in bribe money to the North Korean border guards. It’s a cash cow for them – from which they make huge sums of money.
There’s no way the guards will stop demanding bribes and just turn a blind eye. It’s way too lucrative for them to do that.
Furthermore, the guards don’t get to keep all the money they receive in bribes. They also have to pay up to their next higher (who in turn pays up to his next higher). If those in charge of the guards hear about people being allowed to cross the border without paying bribes, they will assume the guards are pocketing the money and the guards would lose their jobs and probably be sent to a gulag or executed.
So the incentive to force border crossers to pay bribes is both financial – and a matter of life or death for the guards.
8:06 pm on December 4th, 2009 15
I wouldn’t move to “Gold” its far overvalued. It is prime to drop in value. Move it into US currency, which is undervalued and due to regain much of its lost value, especially if there is a real upturn in the US economy.
8:19 pm on December 4th, 2009 16
The border guards complicit in the defections to China is what I am referring to. These border guards are making money for the regional cadres who also have their blackmarket operations going as well, which is why the currency reevaluation was probably initiated.
8:21 pm on December 4th, 2009 17
I remember that episode. The last time I saw that one was a long time ago, maybe when I was still a teenager. M*A*S*H is a great show (I’ve defended it many times against the Asian-American activist orthodoxy). I should make a point of rewatching all the episodes.
Anyway, these are some great comments, but I’ll have to wait until later to answer them. I’m on an eight-year-old old iBook and it is mind-numbingly difficult to type out good, long answers.
10:11 pm on December 4th, 2009 18
Of course the Chinese are pissed off about this. The last thing they want is to lose their “buffer” from the US/ROK and to feel the potential effects of a refugee crisis. Most importantly, they do not want a unified Korea that could compete against it, in addition to Japan, in the future. A unified Korea would be a very important, powerful, and rich regional power.
2:47 am on December 5th, 2009 19
I was speaking in the short term…The very short term.
6:47 pm on December 5th, 2009 20
Nope, risk is far too high. “Short term” you mean under six months or a year on the outside. Still think you could lose as the markets are usually looking six months in advance. US currency is a safer bet with minimal downside.
6:50 pm on December 5th, 2009 21
Yet, the Chinese must know that the inevitable will eventually come. Perhaps they are angry that they can see it coming sooner than later.
10:43 pm on December 5th, 2009 22
I have an idea for an experiment. The North Koreans used to float balloons over the DMZ and drop-litter leaflets. What would happen if Santa Claus road his sleigh over NK at night and littered the countryside with Chinese Yuan?
I believe the fire of capitalism has already sparked in North Korea and can not be put out.
I’d be wiling to throw a few bucks into the experiment.
9:22 am on December 6th, 2009 23
I speaking literally. It was a figure of speech, to emphasize that I feel that North Korea, at the rate it’s going, will collapse very soon. If North Korea collapse, you can be sure that the Korean won will lose an awful lot of its value.
9:23 am on December 6th, 2009 24
“I speaking literally”?
Clearly, I meant to write, “I wasn’t speaking literally”.
9:59 am on December 6th, 2009 25
I understand, and was just having some fun with the idea. No offense intended.
4:25 pm on December 6th, 2009 26
M*A*S*H is just one of those things that do not need to be defended. Yes, I have also endured the anti-mash orthodoxy, which I might add are invariably fobbish first-generation intellectual poseurs, barely literate in the language, who don’t get American humor at all. I have to reiterate to such KA friends the era during which the series enjoyed its heyday, and how seeing it as a series about the Korean war is only the most literal interpretation that belies it true function as a thinly cloaked satire about Vietnam. When I get them to see it that way, especially vis-a-vis the 70′s angst and anti-Vietnam fever, KA’s seems to be willing to give MASH a second chance as one of the most brilliantly written episodic anti-war sitcoms ever produced. Long live MASH and hopefully I’ll be able to get through my massive complete episode DVD collection that I got last year for Christmas!
7:45 pm on December 6th, 2009 27
“anti-mash orthodoxy”, “invariably fobbish first generation intellectual poseurs”, “brilliantly written eposodic anti-war”.
My god. You got ‘that’ involved with a sitcom? What a nincompoop.
5:40 pm on December 9th, 2009 28
You can read more about the North Korea currency shift here:
http://globalpapersecurity.com/north-korea-changes-currency-and-rates-100-to-1.htm