Historical Sketch

The partition of the Korean peninsula after the Japanese withdrawal triggered the creation of two Korean states in 1948. The territories north to the 38th parallel became the Democratic People's Republic (commonly referred to as "North Korea"). In 1950, North Korea tried to militarily overcome the partition and to annex the south. The Korean War ended with an armistice agreement in 1953 which restored the pre-war situation. Since then, North Korea got gradually isolated politically and economically which became almost complete after the fall of the Soviet Union.

Monetary History Overview

The currency of the former Japanese colony continued to circulate in both parts of Korea. In December 1947, the provisional government in the North decided to withdraw the notes of the former Bank of Joseon (Chōsen). A central bank was established and the 1st North Korean Won was created as national currency before the Democratic People's Republic was formally proclaimed. The currency exchange was carried out with a partial confiscation to eliminate the wartime money excess. During the Korean War, the invalidated banknotes were re-issued to destabilize the economy of the South, where they had never been recalled. In 1958, the central bank got reconstituted, and for the first time, an exchange rate for the Won was defined by pegging the North Korean currency to the Soviet Ruble. In February 1959, the currency situation was ruther improved when North Korea carried out a currency reform. Two zeros were cut, and the 2nd North Korean Won became the new unit. The Ruble peg was retained without change and remained nominally in place until the end of the USSR. In October 1974, North Korea introduced an effective transfer rate against the US Dollar at about 50% of the inoperative official rate and adjusted it slightly from time to time afterwards. In August 2002, the North Korean currency policy was revised completely. The transfer and official rates were abolished and replace by an effective rate at about 1% of transfer rate. The political and economic isolation of the country, however, had alrady reduced the government transactions to almost nil, and private transactions were done at black market rates. In 1979 and 1992, North Korea carried out banknote exchanges, mainly to of confiscate surplus cash holdings as the amount to be converted was limited, and the conversion period was both brief and announced at short notice. Another currency exchange with partial confiscation was carried out in late November 2009, this time announced during the day and before the new banknotes were available in sufficient amounts. On this occasion, two zeros were cut, de facto creating the 3rd North Korean Won as new unit. The official North Korean reading of the event, however, is that no currency reform had taken place, just the rendering of the denomination on banknotes and coins has been altered. Due to this interpretation the Won's effective exchange rate against foreign currencies was not changed, means that it was cut to 1%. The quotation of the government rate ceased in mid-2020, so that since then only black market rates exist for the North Korean Won.

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