Pyongyang's first revamp of the won in 17 years will render the currency useless, say some Chinese traders, but experts said the revaluation will not heavily affect trade.
As of yesterday, the Democratic People's Republic of Korea (DPRK) revalued its currency, the won, at an exchange rate between old and new notes of 100 to 1, according to a Xinhua News Agency dispatch from Pyongyang.
The exchange of old notes will continue until Sunday, according to the news agency. It is unknown whether the new 1 won will have the same purchasing power of 100 old won.
"I have collected DPRK notes through trades over the years," said an anonymous Chinese trader in Hunchun, Jilin province, to China Daily yesterday. "I have no idea about the purchasing power of the new notes. I'm afraid the notes I have will become valueless paper."
The trader declined to reveal how much he owns in the DPRK unit. Hunchun is a trade hub bordering China and the DPRK.
"The revamp sends my confidence about the currency, if any, to rock bottom," the trader said.
The Euro is commonly used in trade between China and the DPRK. The yuan, instead of the won, is popular in border trade, said Su Hao, an expert in East Asian affairs at Beijing-based China Foreign Affairs University.
The won has been slumping for many years, from 300 won to more than 600 won against 1 yuan, according to the trader.
Abd the trader is not alone in his trepidation, said Shi Hongjun, a customs official in Hunchun.
"We heard about the news last (Monday) night, which is abrupt," he said. "It cracked the nerves of many Chinese traders and they called in yesterday to ask what's really happening."
China's foreign ministry spokesman Qin Gang said the nation hopes that bilateral trade will keep moving when asked to comment on the DPRK move.
Ji Jiahu, a Hunchun official, told China Daily yesterday that border trade is continuing as usual. Seafood and timber from the DPRK are delivered to China for daily consumer goods.
In general, "the currency revamp will not affect Sino-DPRK trade," Su said. "It's only a denomination change."
Shan Jie, a trader in the border city of Dandong, Liaoning province, said Chinese traders in the city generally do not accept the won, so "the impact will be minor to them".
As a major goods supplier to the DPRK, China exported $1.36 billion worth of goods from January to October, the latest figure available on the Ministry of Commerce's website. Last year, Chinese exports to its neighbor amounted to $2 billion.
A Hong Kong-based analyst also said the move appeared to affect the DPRK's domestic market more than foreign trade.
"The revamp is obviously intended to curb the country's mounting inflation and black-market trading," said Kim Hyun-geun, a Hong Kong-based analyst at Okasan Securities.
Official figures about the inflation in the DPRK are not available, but Kim said it was 25 to 30 percent.
The move to remove two zeros from the nominal value of the won came after a currency slump after economic reforms were introduced in 2002.
The reforms, to make wages and prices more realistic and introduce limited market freedoms, were largely rolled back in 2005. Authorities have lately been clamping down on free markets.
The redenomination of the won has led to chaos in DPRK markets, Yonhap news agency said in Seoul yesterday.
"Many citizens in Pyongyang were taken aback and in confusion," it quoted a DPRK source engaged in trade with China as saying.
"Those who were worried about their hidden assets rushed to the black market to exchange them for (Chinese) yuan or US dollars. The yuan and the dollar jumped."
Liu Mingtai in Changchun and Lillian Liu in Hong Kong contributed to the story