North Korea redenominates currency

Reuters’s article North Korea takes on traders and, just maybe, reform indicates that North Korea has revalued private holdings of the won by a factor of 100 (i.e. the value of currency held privately has been reduced by a factor of 100).

Redenomination is one of the lesser-used tools to avert or mitigate a currency crisis. Historical records tell of changing the ratio of the value of silver coins to gold coins (or copper to silver coins), which is in many ways analogous to the redenomination of North Korea’s fiat won. Redenomination has often been used to tackle hyperinflation. I believe redenomination is a “bandaid” solution: It addresses a symptom of financial problems, but does not address the cause. However, redenomination could potentially give a reprieve to a government that has an ephemeral financial ailment but rests on otherwise sustainable economic policies and infrastructure. In this respect, redenomination is in many ways equivalent to the issuance of a new currency in place of an old – notably where currency controls are in place.

North Korea’s redenomination is suspected to be based on the government’s aversion to the rising private markets, and to combat inflation.

Wikipedia has an informative article on redenomination of currencies.

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