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Financial Repression in North Korea

The price of rice has increased by roughly 28'500% over the last three years, while the North Korean Won currency is in a free fall. Sounds familiar?
Investments Office, April 2013

Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency, but some 100 years later his prediction is about to bring down the last authoritarian socialist regime.

While North Korea is taking an aggressive military stance toward the outside world, the re-inflationary monetary policy of Western Central Banks seems to have already hit North Korea at its core, through skyrocketing food prices and a plummeting currency.

Sounds familiar? Skyrocketing wheat prices lead to riots in the Middle East and Africa in 2008, before overturning autocratic regimes in 2011. For a refresher, check for the chart we posted in 2012: Time dependence of FAO Food Price Index from January 2004 to May 2011.

Price Levels of Rice and Corn in North Korea (2008-2010)

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 Using the data

Sources: Institute for Far Eastern Studies - Kyungnam University, Daily NK, Open Radio for North Korea, NK Net & Good Friends

published by the Daily NK, Dr. Steve Hanke has constructed this graph of food prices in North Korea:

North Korea - Price of Rice: 2009 - 2012

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Source: North Korean Economy Watch

According to Dr. Hanke:

“From what little data are available, it would appear that, in the span of six months, the price of rice has increased by nearly 130%. This is par for the course in North Korea, where the price of rice has increased by roughly 28,500% over the last three years.” (Source: North Korean Economy Watch)

Finally, food inflation in weak economies always goes in hand with a depreciating currency, and North Korea is no exception.

The first stage of the devaluation was initiated in late 2009 without any waning, as  North Korean citizens were instructed that they had one week to convert a limited amount of their old currency to the new currency at a rate of 100:1 !

According to Marcus Noland (Peterson Institute for International Economics) "The announcement set off panic buying as people rushed to dump soon-to-be-worthless currency, buying foreign exchange or any physical good that could preserve value. As the value of the North Korean won collapsed on the black market, the government issued further edicts banning the use of foreign currency, establishing official prices for goods, and limiting the hours of markets and products that could be legally traded."

Exchange Rate North Korean Won vs. USD: 2008 - 2010

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Sources: Daily NK, Open Radio for North Korea, NK Net & Good Friends, and The Peterson Institute for International Economics, Marcus Noland, February 5, 2010