Currency shift hits North Korea business, spooks China traders

Thu Dec 10, 2009 2:38am EST
 
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By Lucy Hornby

DANDONG, China (Reuters) - Traders in the Chinese border city of Dandong say business has been drying up in neighboring North Korea following an abrupt currency shift that could spell months of uncertainty for its fragile economy.

Trucks laden with goods roll across a snowy, one-lane bridge connecting the two countries, but the traders said many shops and markets within impoverished North Korea had closed as owners try to get a clearer idea of how currency rules and prices will be set by the state, which dominates the economy.

"Our clients are all waiting to see what the new exchange rate will be. Those holding goods are waiting to sell," said a Chinese pharmaceuticals merchant, who has done a booming business selling vitamins and nutritional supplements to customers in the North.

"Shortages mean everything's really marked up over there. Pharmaceuticals sell for about ten times the price here."

North Korea last week abruptly announced a revaluation of its currency so old notes of its won currency will be exchanged for new ones at a rate of 100 to one.

A cap on the amount of currency that can be exchanged could wipe out anyone holding too much wealth in North Korean won. It has also left North Koreans uncertain of the exchange value and acceptability of the new money.

From office desks decorated with bronze bulls and ashtrays, the traders in Dandong are among the first outsiders to sense economic tremors in North Korea, where they supply everything from refrigerators to fruit and pink baby shoes.

The currency move "has the potential to be a destabilizing move for North Korea because it will adversely impact a wide cross section of the population, well beyond merchants who have accumulated wealth," Kay Seok, a researcher for Human Rights Watch in Seoul, said this week.   Continued...