In an attempt to curb staggering inflation rates and black market trading North Korea has sharply redenominated its currency, according to South Korean media reports and China's Xinhua news agency.
The move, which happened for the first time in 17 years, was announced Monday morning with the conversion rate set at 100 to 1. That means a 1000 won bill must be exchanged for a new 10 won bill.
North Korea's Foreign Ministry officials notified foreign embassies in Pyongyang that the exchange of old notes will continue until Sunday and all state-run shops in Pyongyang are closed until a new price on the products are set by the communist government, Xinhua reported.
The surprise announcement also sent "Pyongyang's black market into chaos all day [Monday] as shocked residents hurried to convert their money into Chinese yuan or U.S. dollars," South Korea's Yonhap news agency reported quoting unnamed traders in China.
But South Korea's Unification Ministry could not confirm the news, saying that North Korea in the past had not attempted to hide such moves. "In previous cases, North Korea officially announced new currency revaluations through its official Rodong Newspaper... so we are checking facts," said spokesman Chun Hae-Sung.
North Korea's local currency has taken a nosedive since the government implemented economic reforms in 2002 originally aimed at introducing a market economy with price elasticity. Years of natural disasters and international sanctions due to its nuclear ambitions have dealt a serious blow to its reform attempts.
Instead, a new rich class has emerged - one comprising diplomats, party officials, and citizens with relatives in China or Japan who have access to foreign currencies and products that could be sold in the black market. "They have amassed a lot of wealth through trading in black markets spread around Pyongyang and cities bordering China," said Cheong Seong-Chang, senior researcher of North Korean studies at Sejong Institute.
In this week's surprise currency denomination, analysts in Seoul say the North Korean leader Kim Jong-Il is taking a big risk. "He is trying to catch several birds in one stone, but the main target is the privileged," according to Cheong.
Kim Jong Il Paving the Way for His Favorite Son?
Kim needs the support of the elite and military generals who apparently are the ones with cash stashed in their closets, but more than that, "he needs to ease national discontent against the visible gap between the rich and the poor," said Hong Ihk-Pyo, senior fellow at Korea Institute for International Economic Policy.
North Korea has launched a nationwide campaign to revamp its economy by 2012, the birth centennial of its founder Kim Il-Sung. Kim's third son Jong-Un, reportedly named as his successor, is spearheading a "task force team" for a gradual economic liberalization plan following the Chinese model, according to local reports.
"The mood in the air is changing. It's clear that Kim is determined to lay a fresh start for his favorite son," said Cheong.
U.S. special envoy Stephen Bosworth is due to visit Pyongyang for bilateral talks next week to discuss nuclear disarmament and to bring the North back to six-party talks.