Wednesday, December 2, 2009

Is North Korea's currency revaluation the straw that will break the people's back?

I'm going to start with an important observation: In one fell swoop, Kim Jong-il has just wiped out the means of thousands or even millions to scrape by.

In yesterday's news links I highlighted the North Korean government's recent currency move, which essentially was the issuing of new bills in exchange for old bills, with the new currency effectively lopping off two zeroes at the end. Thus 1000 won of the old KPW is now 10 won of the new KPW. [UPDATE: According to AP, this is apparently the first revaluation since 1959; new notes had been issued in 1992, as noted by commenter hyh below, but that was a 1:1 swap, so technically it wasn't a revaluation (though such semantics might make little difference if you can't convert all your money).]

This move was as much about reining in uncontrolled "black-market" elements of the underground economy as it was about preventing North Koreans from getting carpal tunnel syndrome from writing the numbers in those two extra places when they fill out a bank slip.

A report by Blaine Harden in today's Washington Post, however, indicates that the effect may be even wider felt than even the North Koreans themselves expected:
Chaos reportedly erupted in North Korea on Tuesday after the government of Kim Jong Il revalued the country's currency, sharply restricting the amount of old bills that could be traded for new and wiping out personal savings.

The revaluation and exchange limits triggered panic and anger, particularly among market traders with substantial hoards of old North Korean won -- much of which has apparently become worthless, according to news agency reports from South Korea and China and from groups with contacts in North Korea.

The sudden currency move appeared to be part of a continuing effort by the government to crack down on private markets, which have become an essential part of the food-supply system in chronically hungry North Korea.

In recent years, some market traders have stashed away substantial amounts of cash, while establishing themselves in profitable businesses that the government struggles to control.

But under the rules of the new currency system, the wealth of these traders has largely disappeared, unless it is held in Euros, dollars or Chinese yuan.
[UPDATE: The chaos or revaluation is also covered at WSJ, New York Times, Reuters, UPI/UPIAFP, Yonhap, Korea Herald, Chosun Ilbo, and BBC. Yonhap also has a helpful chronology of North Korea's past currency reforms.]

Let me make it absolutely clear: This is some serious stuff. North Koreans under Kim Jong-il largely just do what they can just to survive in the Stalinist state, and for many that may mean engaging in black-market activity. Or even just relying on those who engage in black-market activity, like the private markets that sell food. If these things dry up or dissipate, so too do their odds of making it into next year diminish. This is a grave turn of events.

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. That critical mass is hard to reach, though, because the fear of the authorities imprisoning or wiping out your entire family based on your actions as an individual complicates the calculus of that tipping point of death: You have to figure out at what point your entire set of loved ones are more likely to die if you do nothing than if you do something, and that gets into far murkier math.

Moreover, for many North Koreans who have reached that tipping point of death, doing something may mean simply leaving the country altogether, as hundreds of thousands have done. As they leave, North Korea as a whole becomes further and further from that critical mass (though a sudden exodus of people, à la Dr Norbert Vollersten, could itself contribute to a critical mass of a different sort which has the same outcome of regime collapse).

But the currency revaluation may have revalued the death tipping point calculus as well, and I wonder if this one event may be the proverbial straw that breaks the camel's back, a catalyst that changes the game for so many people in such detrimental ways — and at the beginning of winter to boot — that the tipping point of death becomes more clearly in sight.

To give you an idea of how bad this is for people who had hoarded the old KPW, the restrictions on how much cash can be converted are draconian:
According to two web-based groups with sources in the North, that limit was set Monday at 100,000 won, which at current black-market rates amounts to just $40. All North Korean currency that individuals possess in excess of that amount becomes worthless, under the revaluation.

Amid widespread protests, the limit was slightly raised to 150,000 won (about $60) in cash and 300,000 won ($120) in bank savings, according to DailyNK, an online news organization that has informants in the North.

"I worked like a dog for two months for the winter, but the money became useless paper overnight," a resident of Sinuiju, a city that borders China, was quoted as saying on the web site of Good Friends, a Seoul-based aid organizations with informants in the North.
North Korea and its Chinese benefactors may be trying to play down the chaos (Xinhua blithely reports that "state-run shops were closed Tuesday as sales staff posted new prices on goods") but they may have unleashed the furies of the people, with ends that they themselves did not foresee and cannot control.

North Korea, from the bottom up, is in for a long winter.

UPDATE 1: Joshua at One Free Korea has an excellent analysis of this same issue. Commenter mike v suggested that you (the reader) look into you pocket and see if you have $40. If you do, then "you are richer than anyone in N. Korea after they exchange their old currency for new currency." True that. Unfortunately, I don't have forty bucks in my wallet. I'm a starving grad student whose money is tied up in Seoul real estate.

And this got me to thinking: Unless there have been behind-the-scenes provisions for connected people to exchange considerably more than the $40 or $60 limit, then those middle-level party cadres who run the show outside of Pyongyang suddenly have a lot less stake in keeping the regime going.

I have further written on this topic at this post. Further updates can be found by clicking on this category.


  1. I read the WaPo report before reading your post and had a very similar reaction. I also decided to find out more about NK's previous currency revaluations and saw that the last one in 1992 also had a similar limit on the amount of old money you can exchange unlike the reforms before 1992. !992 also is around the time when economy of NK started going downhill (downfall of Soviet Union was big too of course) and famines were widespread by 1995. This may very well be the last straw - incredible!

  2. One could argue that these circumstances fit James C. Davies "J-curve" theory, that mass discontent breaks out in reaction to a setback in a period of gradual improvement.

    The restrictions on these underground markets has been gradually becoming lighter over the past several years, and the people have been doing better as a result. This recent crackdown in contrast to "rising expectations" could be what drives people to arms.

    I doubt it, though, because most social theorists argue there needs to be some degree of institutional upheaval before resistance can catch on. I haven't heard anything that might qualify as "institutional disruption". The government, and the secondary institutions that make up daily life, haven't changed.

  3. Good stuff -- thanks for the analysis. It reminds me that, since the DPRK is nothing if not Legalist in its approach to criminality, understanding the desire for rebellion can be aided by reading Sima Qian and Chinese dynastic histories. It is always at that tipping point you mentioned in bold where dynastic change lies. Good Friends reports would seem to indicate that North Korea is reaching that point, but then again, you've got to keep in mind the Pyongyang factor, where people at least seem to be reasonably well fed. As the Tonghaks proved, you can cause chaos in North Pyong'an province (e.g., the periphery), but the government isn't going to fall without some foreign intervention. Thus the present.


Share your thoughts, but please be kind and respectful. My mom reads this blog.