NKorea bans foreign currencies in market clampdown

AP News
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Posted: Dec 31, 2009 4:17 AM

North Korea has banned the use of foreign currency, another sign its hard-line communist government is intent on reasserting control over the country's nascent market economy.

Reports say the decree warns of severe punishment for anyone using U.S. dollars, euros, yuan and other non-North Korean currencies. Foreign currencies previously were accepted in some shops, restaurants and other outlets, particularly those catering to foreigners.

The order, issued by North Korea's state security bureau and going into effect Jan. 1, aims to "forbid the circulation of foreign currency," China's state-run CCTV television said in a brief report late Wednesday.

The Daily NK, a Seoul-based online news outlet, said the order prohibits all individuals and organizations apart from banks from possessing foreign currency. It said the decree was posted in public and at workplaces, and went into effect Dec. 28.

There was no mention of the new ban Thursday in official North Korean state media. In Seoul, a South Korean official confirmed the ban, speaking on condition of anonymity because he was not authorized to speak to the media on intelligence matters.

The order comes weeks after the government redenominated North Korea's currency, the won, as part of a far-reaching currency overhaul aimed at curbing runaway inflation and reasserting control over the economy.

The restrictions come as impoverished North Korea faces tightened sanctions for its nuclear defiance that have curtailed its arms exports and other traditional sources of hard currency.

Unable to feed its people, the government began allowing some markets in 2002, including some permitting farmers to trade in produce.

While an economic success, the markets also sold banned goods such as movies and soap operas from rival South Korea. The country's largest wholesale market in Pyongyang was reportedly shut down in mid-June.

The currency overhaul sought to rein in those who had profited from market commerce by ordering North Koreans to exchange a limited amount of the old bills for new ones, and to deposit their savings in banks.

The redenomination reportedly sparked anger among North Koreans who fear they may never be able to withdraw the deposits. Authorities ordered border guards to open fire on anyone who crosses the North Korean border without permission, an apparent attempt to thwart defections by people disgruntled over the currency reform.

The currency revamp could trigger instability in North Korea that may pose a threat to South Korea, its defense chief warned Thursday in Seoul.

"It's difficult to predict what type of threat would come to us following a possible regime instability that could occur due to the aftermath of the currency reform" and the power handover believed under way in North Korea, Defense Minister Kim Tae-young said in a New Year's message to troops.

The youngest son of North Korean leader Kim Jong Il was behind the currency reform, according to the Seoul-based Open Radio for North Korea, which cited an unidentified source. Kim is believed to be grooming son Kim Jong Un to take over as leader of the nation of 24 million.

The latest currency decree gives businesses 24 hours to deposit all foreign currency in banks. "When it is needed for trade, it can be withdrawn after obtaining approval," it said, according to the Daily NK.

The ban is aimed at seizing foreign money tucked away by those still engaging in private market commerce, analysts said.

"North Korea has a problem with people trying to exchange their money for foreign currencies, and then storing the savings in their cabinets since they don't know how the value of the local currency might change, said Jeong Kwang-min, a research fellow at the state-run Institute for National Security Strategy in Seoul.

The new ban shows the regime's intention to "firmly" resolve and bring the black market under control, Jeong said.

"The ban is meant to root out people still trading at markets," said Yang Moo-jin of Seoul's University of North Korean Studies. "More broadly, it's aimed at smoothly completing the currency reform by restricting the use not only of local currency but also foreign currency."

The latest ban also applies to foreigners, who must exchange foreign bills into North Korean won in order to purchase items, reports said.

Sweden's ambassador to North Korea, Mats Foyer, said by e-mail Thursday that he had received no official notification of the decree.

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Associated Press writers Hyung-jin Kim in Seoul and Christopher Bodeen in Beijing contributed to this report.