Free elections are not part of North Korea’s political fabric, but Kim Jong-Il and his advisors are undoubtedly aware that the regime’s legitimacy will be challenged if it fails to meet its promise of achieving a strong and prosperous nation by 2012, particularly if it faces a leadership transition. The November 30 announcement of currency reform, entailing redenomination of the North Korean won such that 100 old won = 1 new won, appears to be a gamble that it can achieve that objective in an ideologically acceptable manner. It is a huge bet.

As clarified and adjusted over the course of the subsequent weeks (according to press reports, as official announcements remain lacking) the measures required residents to exchange old won for new won currency up to a limit of 500,000 old won per individual—equivalent to $200 or less at unofficial market rates. Amounts in excess of the limit could be exchanged if deposited in a bank account, although amounts in excess of 1,000,000 old won could be so deposited only if a legitimate means of accumulation was shown. Some reports indicated that a subsidized exchange rate of 10 old won for 1 new won was available for small amounts deposited in a bank rather than exchanged for new currency.

The subsequent move to ban possession of foreign currency appears to be aimed at reinforcing the currency reform, or at least at dealing with the perception that the elite and the more successful traders were able to escape the financial losses that smaller traders suffered.