Tags: NKorea | free | enterprise | money

NKorea Economic Repression in Guise of Reform

Wednesday, 02 Dec 2009 10:12 PM


North Korea announced a surprise currency reform this week. The move isn't about good economics, however; it is yet another stratagem by the central authorities to short-circuit the development of an entrepreneurial class independent of the state.

Currency reforms are not a bad thing in principle. Stable governments historically have used this tactic to draw a line under bad economic policies of the past, often after taming a hyperinflation.

Good reforms typically involve knocking zeros off the old paper and issuing new currency, perhaps at approximate parity to major currencies such as the dollar or the euro to make it easier for citizens to hold their government accountable for macroeconomic performance. In recent years Turkey and Ghana, among others, have successfully implemented such reforms.

What occurred Monday in North Korea is different. Unlike a Turkish or Ghanaian-style reform, in which all citizens are encouraged to convert all their holdings of the old currency, the North Korean regime limits the amount of currency that can be converted.

This renders excess holdings worthless, and has set off the frenzy this week to get out of old won and into anything else—dollars, Chinese yuan, physical goods—that will maintain value. Any economic "reform" also creates opportunities to parcel out benefits, as with a 2002 price and wage reform that favored the military.

This move is part of Pyongyang's broader effort to curtail the rise of market activities and the development of pathways to wealth—and potentially power—beyond state control.

Participants in North Korea's bootstrap capitalism include everyone from laid-off factory workers to government officials who exploit their inside knowledge to deal privately in everything from grain to imported Chinese consumer goods.

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2009-12-02
 
 

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