Bad Korea Moves

In the mid-1990s, North Korea became the only urban, literate society ever to suffer famine in peacetime: up to a million died. Like all famines in our age, it was politically determined. And there is an awful sense that history may soon repeat itself.

By the end of the cold war, North Korea had virtually eliminated money from its consumer economy; its people depended on food and goods distributed directly by the state. When that system fell apart, famine ensued. North Koreans had to learn to fend for themselves: markets sprang up. DPRK officials loathed them, as a variant of the "ideological and cultural infiltration" that had destroyed Soviet socialism.

Late in 2009, Pyongyang struck against this trend with a "currency reform". New won notes were issued for old on a 1-to-100 basis and less than £25-per-person trade-in was permitted. A week later, all old money was void. A crackdown on unofficial commerce with foreign currency followed--the government trying to rub out its "monetary overhang" and punish domestic marketeers.

Currency reforms can bring growth and price stabilisation. But the DPRK's variant led to the won's total collapse: food prices are even higher than before, and rising fast. The economy risks hyperinflation; the markets that forestalled famine are severely unsettled.

Very bad times seem in store for North Korea. Prospects for the international community are not rosy, either. The regime is gambling on a nuclear blackmail game on "disarmament" talks. We have seen how severe Pyongyang's miscalculations can be.

Nicholas Ebserstadt is the Henry Wendt Scholar in Political Economy at AEI.

Photo credit: yeowatzup/Flickr/Creative Commons

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About the Author

 

Nicholas
Eberstadt
  • Nicholas Eberstadt, a political economist and a demographer by training, is also a senior adviser to the National Bureau of Asian Research, a member of the visiting committee at the Harvard School of Public Health, and a member of the Global Leadership Council at the World Economic Forum. He researches and writes extensively on economic development, foreign aid, global health, demographics, and poverty. He is the author of numerous monographs and articles on North and South Korea, East Asia, and countries of the former Soviet Union. His books range from The End of North Korea (AEI Press, 1999) to The Poverty of the Poverty Rate (AEI Press, 2008).

     

  • Phone: 202.862.5825
    Email: eberstadt@aei.org
  • Assistant Info

    Name: Alex Coblin
    Phone: 202.419.5215
    Email: alex.coblin@aei.org

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