North Korea’s New Currency Collapses
The Seoul-based Open Radio for North Korea (ORNK), citing unidentified sources along the Sino-North Korean border, said that merchants were exchanging one yuan for 1,000 new North Korean won as of late last month, plummeting from the 50 won traded for every yuan on Dec. 3, right after Pyongyang introduced the new currency. [Yonhap]
If my math is right, that’s 1,000 percent in less than a month.
Under the move, the communist country knocked two zeros off its currency without warning on Nov. 30 in the first such value adjustment since 1959.
Yet already, the new won is worth half of what the old won was worth:
Before the currency reform took place, 1 yuan was worth around 588 old won, which is equivalent to 5.88 new won.
Wow. This is a really big deal.
The math isn’t clear to me. If two zeros have been knocked off, wouldn’t 588 old won be equal to 5.88 new won? Isn’t the value per yuan the same? What am I missing?
Jeffery Hodges
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With the revaluation, one new one should be the same value of 100 old won and would thus have the same exchange rate as 100 old won. It might be easier to think in terms of Owon and Nwon. The Nwon has those almost 2,000% of its value since it became it became North Korea’s currency.
One yuan was worth around 588 old North Korean won.
One yuan is now worth 1,000 new North Korean won.
One new North Korean Won = 100 old North Korean won.
Therefore:
One yuan is now worth 100,000 old North Korean won?
Thus:
The exchange rate has gone from 588 old North Korean won up to 100,000 old North Korean won?
Have I got this right? If so, that’s devastating.
Jeffery Hodges
* * *
If one Chinese yuan buys 1,000 New Won, then 1 Chinese Yuan would have bought 100,000 Old Won (at an internal surrender rate of 100 Old for 1 New Won.) But in fact it is reported that 588 Old Won had bought 1 Chinese Yuan in early December, — so then the New Won has depreciated 170 times against the Chinese yuan in a month, which is a 17,000% change for the worse.
A better way to analyse the change is through PPP (or Purchasing Power Parity) where the price of a particular commodity is compared. But since the NK government is reportedly buying up all rice of all three qualities in the cross border region, it may even be difficult to construct such a scale for a fundamental item as rice.
Clearly, there has been a catastrophic external failure of the New Won. Inasmuch as the North Korean economy has nothing except mine products and weapons to export (which are valued and paid for externally in hard currency) it appears extremely unlikely that the New Won will be able to recover. But that was part of the plan. The confiscation of old notes, the closing of markets, the destruction of official foreign convertability, and the effective destruction that we see here of black market convertability of the new Won, is all part of Juche.
Since food can no longer be bought or traded internally, then the only way to obtain it this winter will be through showing up at the workplace — but if even that does not result in delivery of food, or of ration cards that can be readily converted into food, then the workplaces of North Korea wil become revolutionary assemblies.
It does look though as if there will be millions of deaths from starvation this winter, unless that faction of the military which despises the Kims revolts and sells North Korea’s nuclear weapons for food — but they in turn are opposed by those marshalls who value the Goetterdammerung effect of nuclear weaponry. The Kims are unlikely to survive. Which of the military-first factions will win is uncertain, but it does look as if Spring will reveal deaths by starvation, and a desperate struggle within the military.
We’ll know something is really in progress when China closes the border region so that it may move infantry across the Yalu to secure Yongbyon and the missile sites for dismantling. China would prefer a marginally functional North Korea but, since it cannot have that, it will not contemplate a nuclear armed South Korea.
Isn’t this a horrible scenario.