N.Korea's Currency Reform 'a Bid to Cement Power'

The biggest motivation behind North Korea's sudden currency reform Tuesday appears to be Kim Jong-il's intention to throttle the emerging free market, which appears to hamper a smooth succession of power to his son Kim Jong-un, North Korea experts and South Korean government officials say. The North announced the won would be revalued at a rate of 100:1.

But some experts say the aim is wealth redistribution, while others believe the reform is aimed at containing inflation, which has skyrocketed since North Korea introduced rudiments of a market economy in 2002.

Kim, who suffered a stroke in August last year, seems determined to hand over power to his son in a third-generation dynastic succession. To do that, he needs to get an iron grip on the regime as the country disintegrates amid endemic poverty aggravated by international sanctions. But widespread corruption means North Korea's emergent wealthy class, which has grown since the mid-1990s, is not easily subdued by recent heavy-handed crackdowns on freedoms. "There are numerous cases of wealthy North Koreans paying off government officials and evading government steps to control them," a South Korean government official said.

In a recent bid to rein them in, the regime in January limited the types of goods people can sell in markets to only homegrown produce, meat (except beef) and clothing. Manufactured goods and imported products must theoretically be sold in state-run stores. The measure was tantamount to a closure of the street markets. But the orders were met with public outrage and failed.

Prof. Nam Ju-hong of Kyonggi University says Kim has "declared war against market forces" with the drastic currency reform, because his efforts to control trade had failed.

Former North Korean professor Cho Myong-chol, now at the Korea Institute for International Economic Policy in Seoul, said, "After failing to shut down private markets in North Korea, currency reform was probably the only option left to neutralize the wealthy merchant class." Cho added the currency reform was aimed at restoring Kim's hold on power. He said that North Korea's new class of wealthy merchants are not the traditional elite and include many people who are not "ideal" communists and could become threats to the state.

Sources in North Korea say authorities are touting the currency reform as an effort to narrow the wealth gap and build an equal society. It is uncertain just how much commercial trade individual North Koreans are allowed to engage in, but money of denominations beyond the new set of bills has become useless. As a result, the currency reform is essentially designed "to seize money from North Koreans who got rich from trading," said Cho Young-ki, a North Korea expert at Korea University in Seoul. "The latest measure has made everyone poor again and possibly raised the North Korean government's hopes of regaining control over its people."

But many experts say the currency reform could cause still more problems for North Korea's troubled economy. Sources in the North say business activity has come to a halt since Sunday and that the situation is chaotic. One source says there were only a few wealthy people during the previous currency reform, but this time, there are a lot of North Koreans who have grown wealthy over the past 10 years. Caught off guard by the currency reform, they are either distraught or enraged. There is even talk of a potential revolt.