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North Koreans Panic Over Devalued Fiat Currency Revaluation

Currencies / Fiat Currency Dec 02, 2009 - 01:32 PM GMT

By: Pravda


The government of North Korea has launched the denomination of the national currency, the won. All citizens of the country will have to exchange their money for new notes. The nation will cut two zeros: 100 wons will thus have the value of 1 won.

There are no restrictions for foreign citizens living in North Korea – they can exchange any amount of cash that they wish. However, there are restrictions for native citizens of the country. They will be allowed to exchange not more than 100,000 won, which is less than $50 – the average salary in one of the most isolated nations in the world.

The news about the denomination came out of the blue and caused panic among the population of North Korea. Crowds of people rushed to buy Chinese yuans and American dollars. Huge lines of people can be seen in front of many banks. The lines grow every hour as people bring more and more of their money in cases and even sacks.

As a result, the dollar rate in North Korea skyrocketed against the won. It became impossible to buy US dollars in many exchange offices, but people are ready to buy the American currency on the black market.

South Korean experts believe that the government of North Korea decided to denominate the currency in an attempt to overcome the galloping inflation rate.

The inflation is caused with the poor state of the nation’s economy, which does not seem to be improving during the recent 12 years already. There are several reasons for it. First and foremost, North Korea runs very expensive missile and nuclear programs and suffers from international sanctions as a consequence of it. The economic policy of North Korea is not efficient at all. Finally, the nation regularly suffers from natural disasters, presumably floods.

Until recently, the official rate of the North Korean won against the US dollar was fluctuating between 135-200 wons per one dollar. However, eyewitnesses say that it was impossible to buy dollars at the official rate. The cost of one US dollar on the black market is ten times higher.

There is another version to explain the current denomination. Some experts believe that the communist NKorean government intends to take away cash assets from those North Koreans who work abroad. There are hundreds of thousands of such people. The party administration supposedly believes that the money of those guest-workers makes the basis of the underground economy of the nation. In addition, the profit, which the government receives as a result of the denomination, will allow to hold grandiose celebrations of the 100th anniversary of the father of North Korea in 2012.

Other experts say, though, that such a withdrawal will not work since the majority of NKorean guest-workers keep their money in the currency of the state in which they live and work.

Yevgeny Khakimullin, an expert for North Korea, said in an interview with Pravda.Ru that South Korean officials always follow the politics of second-guessing when it comes to their comments about the events happening in North Korea.

“The government denominates the currency for the interests of the North Korean population because it is very uncomfortable to use multi-zeroed money. It will not lead to any catastrophic consequences. The rate of the North Korean currency will obviously decline against the US dollar, but the situation will become stable later. The fact that many media outlets blacken North Korea in their reports is not surprising at all. Most of them intend to make the country look like a demonic state. It is obviously something that political adversities of North Korea want them to do,” the expert said.

Sergey Balmasov

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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