North Korea Changes Currency

http://online.wsj.com/article/SB125975276400572645.html

by garply • 17 years ago

143 139 17 years ago

online.wsj.com

etherealG• 17 years ago

holy crap, did a government legally just steal all the money from it's people?

sirrocco• 17 years ago

I'm not sure it's that uncommon in communism. My grandparents told me that the same thing happened in Romania when it was under communist rule.

When we recently slashed a few zeros from our currency (denomination i believe it's called) they were afraid that the same thing would happen again.

josefresco2• 17 years ago

It isn't uncommon, FTA:

"The absence of information in official media adds to the unusual circumstances of the action. North Korea has reissued currency four times previously, all with great fanfare and explanation to the outside world."

turkishrevenge2• 17 years ago

Unfortunately Ceauşescu's reign of terror resulted in a lot of horrible policies under the banner of "socialism" Just look at the ban he placed on abortion and the curtailing of womens rights, which is probably the most reactionary thing a government can do.

joss822• 17 years ago

What if people disagree and just keep using the old currency among them ?

Yeah, I guess they'll get shot.

Also, the mention of "closed-circuit system that feeds into speakers in homes and on streets but can't be monitored outside the country" reminds me so much of Brave New World/1984/Big Brother stuff.

josefresco2• 17 years ago

Would be scary if NK had more power. Fortunately for us (and unfortunate for their people) the country is very poor and relies almost entirely on aid from other countries (China) to keep things going.

drcode• 17 years ago

Not only that, but the speakers don't have an off switch either (although they do graciously provide a volume knob)

jplewicke• 17 years ago

This actually happened in Iraq after the first Gulf War: http://en.wikipedia.org/wiki/Iraqi_Swiss_dinar . Since the government was no longer printing the older currency, it was then immune to inflation by Saddam's government. The old currency appreciated against the newer, inflated currency until we deposed Saddam. It's amazing how little you need to back a currency, and how unbacked ones can be stronger than fiat currency.

listic3• 17 years ago

Re: 1984

My first thought was "How wicked!" Second thought was "Hey, but we have those thingies in Russia too!"

There is a wired radio system in Russia, established way back in the Soviet era, which transmits three radio channels. Simple receiver can consist basically of a loudspeaker and variable resistor as a volume knob, while more complicated receiver can receive one of 3 channels. There's a simple receiver on the wall next to me as I write this. Interestingly, I couldn't find any pictures of my exact model, so here's my (lame) attempt: http://www.flickr.com/photos/22022497@N04/4154137046/ There's another, 3-channel one, of the latest incarnation (late 80's or early 90's) in the kitchen. When my dad bought it, I remember everyone coming to our house thinking it's a VCR, so that should say something of its size and form factor. It still sits up there near the ceiling mainly because of its large luminiscent clock on the front panel. We don't turn these radios on except maybe twice a year out of curiosity :)

These things fit the description "closed-circuit system that... can't be monitored outside the country" if by that you mean "wired"

pvandehaar• 17 years ago

V for Vendetta.

sdfx• 17 years ago

legally is a funny word when talking about north korea.

dimas• 17 years ago

legality is relative term to rules and constitution of the country. North Korea is totally dominated by the government therefore sets its own rules. Whatever government does is considered to be legal because they make it to be so.

asciilifeform4• 17 years ago

The North Korean weirdness differs only in degree, and not in kind, from the everyday actions of every government that issues fiat (non-gold-backed) currency.

mnemonicsloth2• 17 years ago

This would work on gold-backed currency too. Stop issuing green bills-redeemable-for-X-amount-of-gold and start issuing red ones.

The only currency this wouldn't work on is actual gold, silver, etc.

dschobel• 17 years ago

The $40 equivalent cap is the unprecedented part. I don't see how you can argue that the inflation you see in relatively free-market economies can compare with that.

jeromec8• 17 years ago

@asciilifeform, I agree with your statement, which is why I would only advocate fiat currency by a govt. such as we have in the U.S. where the will of the people is (largely, at least) represented.

nandemo• 17 years ago

A similar theft happened in Brazil in 1990. It wasn't done by a crazy dictator. In fact it was right after the first democratic presidential election in decades.

All investments, CDs, savings accounts in excess of around U$1000 were "frozen".

It didn't affect the masses, who didn't have bank accounts anyway. But the middle-class was screwed.

forinti• 17 years ago

You are right, Collor wasn't a dictator.

But he did do some things right, like starting the process of opening Brazil's economy, which in the 80's was more closed than those of the communist bloc. I wouldn't ever think of supporting him, though.

lecha• 17 years ago

This reads like an Onion news story. If only it was...

mattmcknight• 17 years ago

Given that it's happened before there, I'd favor commodities to currency. It's hasn't been a bad strategy when your government is creating new money at rapid rate and calling it quantitative easing either.

idlewords4• 17 years ago

The hard part is choosing the commodity, and figuring out how to store it. If you really think all hell is going to break loose, to the extent that the dollar might one day lose a bunch of its value overnight, then you are limited to stuff you can store in your own house, with all the attendant security problems.

turkishrevenge2• 17 years ago

I wouldn't rule anything out in the DPRK.

As an example, here's Juche, the official state ideology, summed up in an exchange:

Peasant: "I am hungry. I need bread".

Soldier (part of the supposed "revolutionary" class): points gun at peasant. "Are you hungry now?"

Peasant: gulp "No".

Stalinism to its logical conclusion.

idleworx• 17 years ago

what's happening in north korea is an abomination of human rights infringements. i think most westners, especially those who's countries never experienced communism, can't really imagine/comprehend daily life there. I watched this documentary on North Korea a while ago and found it very interesting [http://educatedearth.org/video.php?id=2642]

jlgosse• 17 years ago

The background music and production reminds me of Lost. Maybe Lost is actually based on North Korea. It wouldn't be all that far fetched.

shughes2• 17 years ago

This only affects paper cash though, right? So assuming they have most of their value in a bank, savings, stock, physical assets, or whatever it is they do in "DPRK," then they should be sort of okay.

But I have nooo idea how the banking thing works in DPRK. For all I know, everyone's "bank" is a box filled with cash. Which would make this currency switch suck a lot.

idlewords4• 17 years ago

Stock? Bank accounts? What planet do you live on?

shughes2• 17 years ago

I live on Earth. Also, North Korea uses the Korea Exchange: http://www.mapsofworld.com/north-korea/economy/stock-exchang...

My point is that North Koreans, like anyone else in the world, communist or capitalist, have very little of their value in the form of paper currency. Whether it be goats, rice, gold, stock, bank accounts, etc.. They may value themselves based on a nationally recognized currency (the won?), but that doesn't mean that most of their value is in the form of liquid cash.

The theory of currency recognizes the value of a currency based on its level of trust (to be paid back). Soo in a country like North Korea (ESPECIALLY), citizens probably rarely maintain their worth in the form of paper currency. Because they don't trust it (whether they consciously realize it or not). If Americans don't trust the US dollar, you can imagine that North Koreans don't trust their own currency. Educated or not, brain washed or not, that's common sense.

Another example. I personally trust the American dollar very much. But how much do I have in the form of liquid cash? About $50 in my wallet. The rest of my worth is in assets, stock, savings, 401k, car, tv, intellect, etc. Just not liquid cash. So if America changed currencies all of the sudden, I'd say, "Rats, I just lost $50."

Sooo, again, my point is that this probably doesn't change much for North Koreans. Especially since most of them probably have very little personal wealth anyway (paper cash or other forms of value).

Heavens.

anigbrowl4• 17 years ago

You are partially right. Not about the banking system (which is as much a joke and tool of the NK government as the currency), but insofar as you are better off if most of your assets are in the form of rice or some other physcial commodity. On the other hand, it's pretty likely that having more than a certain quantity of any commodity outside a government-operated warehouse is classified as 'illegal hoarding' and would be grounds for confiscation and imprisonment. North Korea practices such an extreme form of socialism that private property is a meaningless concept there. For all practical purposes it is a feudal society which claims all people, land and commodities as state property.

huangm• 17 years ago

This seems like one of those hypothetical microeconomics questions... you know, the ones that are never really supposed to happen.

"It also reported instances of wealthy people from cities rushing to rural areas on Monday in hopes of buying commodities with the old currency before people in those areas heard about the exchange process."

idlewords4• 17 years ago

In Poland (and I imagine other socialist countries), people who made a bunch of money took pains not to get stuck with cash, for exactly this reason.

Since it was illegal to own foreign currency, a popular solution was to buy and store grain alcohol, on the assumption that no conceivable change in political system would ever make booze lose its value.

The approach had two main drawbacks - you needed a fair amount of space to store large quantities of ethanol, and you had to safeguard the storage room against the depredations of local aficionados.

misterbwong• 17 years ago

My grandma used to tell me a similar story about her old country (Burma) except they used gold jewelry.

lallysingh• 17 years ago

Gold jewelry's pretty popular in India for about the same reason.

jan_g2• 17 years ago

Yes, you are correct in respect with local currency. However, in my country there used to be quite vibrant currency black market instead of alcohol storing. People most often replaced all excess local currency with deutsch marks. At the expense of exorbitant fees, of course. But it was still better to have some deutsch marks than none.

All of it was of course illegal, but the government wasn't too keen to penalise such behaviour. At least I don't remember anyone getting caught.

idlewords4• 17 years ago

It depends on the country and the time period. There were stretches of time in Poland when being caught with a substantial amount of foreign currency would have meant heavy jail time (for the crime of 'speculation'). But no one in history has ever gone down for having too much hooch.

DrJokepu7• 17 years ago

The automatic response of the North Korean government would be introducing a prohibition. Or maybe that already happened, who knows.

mustpax• 17 years ago

They don't even need to go that far. They can just ration supply, forbid stockpiling and fix the price to artificially low levels.

This was occurring as recently as last year all over the world when commodity/food prices spiked. Anywhere you see black markets, you can find rationing and price fixing nearby.

drinian• 17 years ago

According to the article, it's not illegal for North Koreans to hold foreign currency.

I was in North Korea back in August, and bought one of each denomination as a souvenir. Guess they're going to be more valuable now.

Foreigners are not allowed to spend the North Korean won within the country. Instead, you pay in RMB, EUR, USD at locations approved to take foreign currency -- so we couldn't just go buy stuff at the same stores as the locals. Now I'm wondering how much of that foreign currency makes it back to the central government, given this news.

riobard2• 17 years ago

Even now? Then better bring gold back into the market ...

ugh2• 17 years ago

No. (You are not from Europe, right?)

iamelgringo• 17 years ago

I grew up in Costa Rica in the late 70's and early 80's. The country had massive currency devaluation because they started printing massive quantities of currency to pay their foreign debt. The exchange rate went from 8 Colones : $1 to 130:$1 in a matter of a few short years.

People started hoarding dollars and those that had commodities did very well. There was a very brisk black market trade in foreign currencies.

My father purchased a small car, at the begining of the currency crash and frove it into the ground on the terrible riural roads and then sold it 5 years later. He made a $30 profit on the deal because car prices had gone up so dramatically.

We did fine, because we got paid in dollars, but the people around us really suffered.

Tangurena• 17 years ago

The hyperinflationary meltdown in Zimbabwe comes to mind as well. I bought a number of 100 Trillion zimdollar notes off ebay and handed them out at work. Each person I handed one to, I told them about how they tried to handle the inflation by chopping zeros off at the end, until this year when they cut 12 zeros off the end of numbers and shortly afterwards stopped printing their own currency.

Before my father was born, his family lived in Germany and because they had their wealth in US dollars, they were spared the trauma of the German hyperinflation of the 20s. Many of the people he knew growing up had been wiped out by that period.

What a mess. It could happen here.

tikhon• 17 years ago

Voltaire: "Paper money eventually returns to its intrinsic value - zero."

rjurney• 17 years ago

Voltaire would have been referring to this: http://en.wikipedia.org/wiki/Mississippi_Company and John Law: http://en.wikipedia.org/wiki/John_Law_%28economist%29

Read about it last night. The first stock market bubble. Far out... one Ken Layesque figure named John Law took over the entire French economy with his pyramid scheme, giving France its first paper money, for a while.

myth_drannon• 17 years ago

That is very sad and reminds me of Soviet Union collapse. Old people who saved their entire lives had bags full of money that suddenly became worthless ( well some used it as a toilet paper...). It's a recurring theme in Russian movies from 90's , bag of useless cash.

PEOPLE ! The most important thing in your life is your close ones.

CWuestefeld2• 17 years ago

How different is this from officially devaluing the currency in situ? This has been done more than once in the USA (see http://en.wikipedia.org/wiki/History_of_the_United_States_do... )

DrJokepu7• 17 years ago

Very different. This is capping, not just devaluating. If you're devaluating, let's say, by 10%, if you had $10 you will have $9 (it will be still $10 but it will be only worth $9), if you had $100 you will have $90, if you had $1000 you will have $900, etc.

In this case, they're capping as well at $40. If you had $10 you will still have only $9, but if you had $100 (or $1000 or a million) you will only have $40. That's it. That's not just taxing wealth, it's taking all the wealth away.

Retric• 17 years ago

At the same time there was no physical destruction of physical stuff, so it was wealth transfer not wealth destruction. In theory the country should be approximately as wealthy after this action as it was before it.

PS: Ignoring the intangibles.

CWuestefeld2• 17 years ago

So it's like devaluation, but with a "progressive" twist?

gaius• 17 years ago

it's taking all the wealth away

It's taking the liquidity away. People can no longer trade amongst themselves; they can only "trade" with the government.

gojomo• 17 years ago

Vaguely similar currency-expiring policies have been suggested for the US, as well. See this column from Harvard's Gregory Mankiw in April of this year:

http://www.nytimes.com/2009/04/19/business/economy/19view.ht...

protomyth• 17 years ago

WTF? - "North Korea's official news agency, TV station and major newspapers, which are monitored in South Korea and Japan, by late Wednesday still had not announced the currency exchange. Instead, authorities continued to transmit information through a closed-circuit system that feeds into speakers in homes and on streets but can't be monitored outside the country."

Can we just buy the country and let the leaders go into exile?

dpatru6• 17 years ago

This illustrates why government should not be trusted with the control of money. What N. Korea is doing is massive theft, but so is the issuing of any fiat currency. The Federal Reserve is just a better thief than N. Korea because it steals at a slower, smoother rate, thus not totally killing the incentive to produce.

Evgeny• 17 years ago

Very similar to the Pavlov monetary reform in the Soviet Union - I was just a kid but I can remember that:

"Within hours of the stunning announcement, massive lines had formed in the bitter, early-morning cold, waiting for banks to open. "People are afraid," says Vladimir Kuzmichov, a retired engineer nervously fingering his cash notes outside a Moscow bank. The Soviet state bank had just proclaimed that all 50- and 100-ruble notes would be banned and saving accounts would be partly frozen. Each person could exchange up to 1,000 rubles, the equivalent of less than four months' average pay, for small-denomination notes."

http://www.businessweek.com/archives/1991/b319837.arc.htm

sliverstorm• 17 years ago

Maybe I'm totally missing something, but how exactly do they expect their citizens to buy food now? If everyone suddenly has $40 and that's it, that sounds an awful lot like an awful lot of people are going to starve to death.

naa42• 17 years ago

Well, there are several levels of answer to your question. First of all, there are no currency exchange there and people are not allowed to have a foreign currency (USD). So this "equivalence" is established with black market exchange rate which represents not the parity of prices of commodities but the (high) value of USD for the back market participants. It is normal since the black market participants are involved into contraband and they need foreign currency badly. So for $ 40 in black market exchange rate you can get a lot of food there. The second level of the problem is that the food/goods market there is government-controlled and for some goods there is no market at all - they are centrally distributed by the executives. So the amount of savings is not directly connected with the consumption level. And the next point is that the person who have a job and a regular paycheck doesn't need to have a lot of savings in order not to starve. As I can understand the social contract of the socialists' states is the lack of unemployment, so anyone is employed even if his work is not needed.

blahedo• 17 years ago

They're supposed to depend on the government. Having $40 in your pocket would force you into the bread lines pretty quick, eh? And if you're in the bread lines it becomes a lot harder to actively protest the government....

North Korea Changes Currency

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