SEOUL, South Korea – North Korea revalued its national currency for the first time in decades in a bid to fight inflation and flush out the black market money trade, reports said Tuesday — a move that sent residents of the communist state scrambling to convert hoarded money into foreign currencies.
North Korea revalued its currency at an exchange rate between old and new notes of 100 to 1, China's Xinhua news agency said in a dispatch from Pyongyang. It cited a verbal notice Tuesday from North Korea's Foreign Ministry to foreign embassies in North Korea.
The exchange of old notes started Monday and will continue until Sunday, Xinhua reported. It said no reason was provided for the sudden change.
The redenomination drove residents in Pyongyang to rush to black markets to convert stashed-away money into dollars and Chinese yuan, Yonhap News Agency said in Seoul, citing unidentified North Korean traders operating in China.
"Pyongyang residents were taken aback and thrown into a big confusion due to the currency reform," the traders were quoted as saying.
State-run shops in Pyongyang were closed on Tuesday morning, with one unidentified saleswoman saying the shops would reopen a week later after new prices for commodities are set by the government, Xinhua said.
Yonhap said the revamp was aimed at fighting inflation and flushing out money traded on the black market.
The North Korean won was officially traded at 145 to the dollar, said Dong Yong-sueng, a senior fellow at Samsung Economic Research Institute in Seoul. But more than 3,000 won were needed to buy $1 on the black market.
North Korea has relied on outside food handouts since the mid-1990s, when the economy collapsed due to natural disasters and mismanagement, and aid from the former Soviet Union dried up after the bloc's collapse.
South Korea's mass-circulation Chosun Ilbo newspaper speculated that the move is part of leader Kim Jong Il's way of tightening control over his nation's 24 million people as he prepares to hand over power to one of his three known sons. The paper also cited unidentified sources in North Korea.
Officials at the National Intelligence Service and the Unification Ministry in Seoul said they couldn't immediately confirm the reports.
It would be the impoverished communist country's first currency revamp since 1992, when North Korea issued new notes with the exchange rate set at 1:1, but apparently the first revaluation since 1959.
Analysts called it a significant move toward economic reform for a nation with a stagnating economy and millions going hungry.
"The aim is to flush out money being traded on the black market and to reinvest it in the public sector — part of a bid to revitalize the economy. Broadly, it's aimed at building an economically prosperous nation," said Dong of the Samsung Economic Research Institute in Seoul.
Pyongyang has set 2012 — the centenary of late North Korea founder Kim Il Sung's birth — as a goal for building a "prosperous" nation.
Koh Yu-hwan, a North Korea expert at Seoul's Dongguk University, also said the move was part of ongoing measures to reform the economy and open up to trade with the outside world.
The regime introduced economic reforms in 2002, including allowing street and farmers' markets. But the government backtracked in 2006 after the reforms failed to revive the economy and resulted in an influx of foreign goods.