The Economic Reform That Backfired

For years North Korea had been experiencing inflation and in 2009, when the government tried to fix the problem it backfired and only made matters worse. The government implemented a reform to redenominate the economy, that is lowering the value of every note by two decimal places and therefore increasing the value of the won. Redenomination can  be helpful as it makes everyday transactions simpler, however when mishandled it can lead to families left bankrupt and problems for the economy nationwide. Unfortunately in North Korea it was mishandled, as the country only gave citizens 6 days to exchange their money and they were only allowed to exchange 100,000 won at a 100:1 rate and more than that 100,000 won at a 1000:1 rate.This means that a citizen could only exchange the value of $740/£445 at a normal rate.

The effect of this was essentially a tax on even the mildly wealthy. Kim Jong Il’s reasons are unknown, but it is hard to believe it wasn’t to further the centralisation of the economy; taking money from the markets and giving him control over the money as well as the people.

This move was possibly a step too far because ,whilst it controlled some, even well trained North Koreans were forced to disobey the law which caused problems for the economy. People began to exchange with other currencies (mainly Japanese yen, Chinese yen and the American Dollar) because they no longer trusted the won or simply because they couldn’t exchange their money in any other way(this is called dollarization).Unfortunately the value of the won internationally was incredibly low because the limited items that could be bought from  North Korea weren’t valuable and the world was now more than ever aware of the economic crisis.This resulted in higher inflation rates than ever before.