Friday, June 11, 2010

Kim Jong-il's Great Currency Confiscation: Update

Railway Checkpoint
Photo by Du Bin

Some readers may recall a few of my posts on this issue back when the North Korean currency confiscation was more current, but its effects are still being felt today.

Sharon LaFraniere, writing for The New York Times, tells us more details about that 'reform' in her lengthy, fascinating article, "Views of North Korea Show How a Policy Spread Misery" (June 9, 2010). Among other anecdotal reports, she details the life of a construction worker who lived in poverty but had managed, by selling small bags of detergent on the black market, to scrape together a small nest egg over the years, more than 1,500 dollars . . . until that fateful day:
It hardly seemed that life could get worse. And then, one Saturday afternoon last November, his sister burst into his apartment in Chongjin with shocking news: the North Korean government had decided to drastically devalue the nation's currency. The family’s life savings, about $1,560, had been reduced to about $30.
Quick-witted, the man instantly realized what had to be done:
For the construction worker, his sister's news of the coming devaluation unleashed a furious scramble to salvage the family nest egg. He emptied the living-room cabinet drawer that held their savings and split it with his wife and daughter, telling them, "Buy whatever you can, as fast as you can." The three bicycled furiously to Chongjin's market.
Unfortunately for his family, he wasn't the only quick-witted North Korean:
"It was like a battlefield," he said.

Thousands of people frantically tried to outbid one another to convert soon-to-be worthless money into something tangible. Some prices rose 10,000 percent, he said, before traders shut down, realizing that their profits soon would be worthless, too.

The three said they returned home with 66 pounds of rice, a pig's head and 220 pounds of bean curd. The construction worker's daughter had managed to purchase a small cutting board and a used pair of khaki pants. Together, he said, they spent the equivalent of $860 for items that would have cost less than $20 the day before.
But money wasn't the only thing lost in the disastrous devaluation:
"Now, if you go to the market, people will say anything," the construction worker said. "They will say the government is a thief -- even in broad daylight."
Even the small remaining modicum of trust in the North Korean government was lost in the monetary debacle, and not just for the construction worker's family. I suppose that this could be considered a silver lining, not that it offers any coin to bank on. We'll have to see how things pan out.

I ought to mention that the NYT credits Ms. Su-Hyun Lee for contributing research from Seoul, South Korea for this story by Sharon LaFraniere. I don't know Ms. Lee personally, of course, but she often contributes to NYT reports on Korea, and I hope that she continues such investigations as this one.



At 9:42 AM, Blogger John from Daejeon said...

This is pretty scary on so many levels: "My son says he wishes the war would come because life is too hard, and we will probably die anyway from starvation.”

At 11:23 AM, Blogger Horace Jeffery Hodges said...

Probably a lot of North Koreans feel this way . . . but they have no influence on policy, whereas those who do have influence have no interest in war.

Jeffery Hodges

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At 2:56 PM, Blogger John B said...

When I was reading it, my first thought was, why did the guy think sitting on a pile of cash was good financial planning?

Public education in North Korea continues to regard most commerce as anti-social activity. How do they learn to manage personal finances? I mean, here in the US we routinely make very poor decisions, despite being raised to free markets. If the current regime were to collapse (or be radically transformed) and switch to free markets and private ownership, will the people have any idea how to handle themselves?

Perhaps, some NGO could figure out the most efficient financial strategies that will work within the current boundaries of economic activity permitted by the state (or at least not too far outside of them) and try to educate North Koreans.

At 8:11 PM, Blogger Horace Jeffery Hodges said...

I think that the basic economic strategy in North Korea concerns physical survival. Probably, he figured that the best strategy lay in having ready money for emergencies -- such as purchasing food to stave off starvation.

The alternative is barter, which the people might be considering from now on . . . though I don't know for a fact.

Jeffery Hodges

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At 6:22 AM, Blogger John B said...

I can see why it made sense at the time, but it was a pretty poor decision. The DPRK discourages cash accumulation to begin with, and in unstable economies, cash is usually the last thing you want. Inflation can take off at the drop of a hat, especially in completely unregulated markets like the black market. A combination of easily bartered goods and, perhaps, foreign currencies (which I've heard is what big black market operators prefer) makes a lot of sense. I mean, they tell us all the time, the first rule of personal finance is to diversify, right?

The reason that this sticks in my ear so much is that the people are enduring such desperate conditions. If a little bit of education can make the markets there a bit more efficient, it could really ease the suffering, by a degree.

At 7:00 AM, Blogger Horace Jeffery Hodges said...

You're right, of course. I think that very many North Koreans are ignorant of financial matters, particularly those 'educated' members of the nomenklatura in the government, who didn't even realize the effect that devaluation would have the North's economy though they were supposed to be the economic experts.

Jeffery Hodges

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