SEOUL (Reuters) - North Korea will re-denominate its won currency to knock two zeros off the nominal value of bills in an attempt to fight inflation and clamp down on black-market trading, South Korea’s main news agency reported on Tuesday.
Yonhap news agency quoted multiple North Korean foreign trading officials based in China as saying that the reform measure was implemented from 11 a.m. (0200 GMT) on Monday and made people rush to convert their won currency into yuan or U.S. dollar on the black markets.
“The conversion rate was set at 100 to 1 and accordingly every 1,000 won bill is now being exchanged into a 10 won note,” one of them said.
“Black markets in Pyongyang have turned into chaos because residents rushed to convert the local currency into (Chinese) yuan or U.S. dollar,” the person said, referring to the capital city of the communist state.
North Korean won, although called the same as South Korea’s currency, is not officially traded for or quoted against foreign currencies.
Impoverished North Korea has connived at foreign-trading officials smuggling foreign currencies they earned abroad into the country in return for “donating” part of the hard currencies to the central government, Yonhap said.
This practice, amid the lack of a modern financial and monetary system, has sharply increased money supply in circulation and has recently contributed to lifting some asset prices such as luxury apartment flats, it said.
Years of economic mismanagement, natural disasters, the collapse of the Soviet Union and wide-ranging sanctions due to its nuclear programme have put the North’s economy dead all but in name for many years.
The news came a week before U.S. special envoy Stephen Bosworth is due to visit North Korea to discuss how to get Pyongyang to give up its nuclear weapons programme and persuade the country to return to stalled six-party talks.
Reporting by Yoo Choonsik; Editing by Ron Askew