North Korea will ban use of forex

North Korea will ban the use of foreign currency from New Year's Day in another move to reassert the communist regime's control over the economy, South Korean officials and analysts said Thursday. A government official, speaking on condition of anonymity, confirmed a report of the ban carried by China's Xinhua news agency earlier this week. Xinhua, reporting from Pyongyang, quoted a decree from the North's ministry of people's security prohibiting all entities and individuals from using foreign currency from January 1. Foreigners will have to exchange money into North Korean won, the decree said, adding that any violation would be 'severely punished'. The ruling came less than a month after the North issued new won banknotes as part of a 100-to-one currency revaluation. It restricted the amount of old notes which could be changed for new currency, sparking widespread anger. The revaluation was widely seen as an attempt to clamp down on a growing free-market economy, which emerged after the state food distribution system collapsed during famines in the 1990s. In 2002 the regime introduced limited wage and price reforms, causing prices to rise sharply. The reforms were rolled back three years later and in recent years officials have been cracking down on trading in street markets. Professor Kim Keun-Sik of South Korea's Kyungnam University said the forex ban was aimed at further curbing private markets. 'As part of efforts to tighten state control over the economy, it needs to crack down on merchants and the new rich who have been dealing in foreign currencies at private markets,' Kim told AFP. The North officially limits the use of foreign currency to designated outlets. But visitors say it is accepted at many places in Pyongyang. South Korea's defence minister Kim Tae-Young said the currency revaluation, and the North's succession plans, could pose a threat. 'It is difficult to estimate the threat to us that will arise in the aftermath of the currency reform and from the regime instabilities as leader Kim Jong-Il goes ahead with a hereditary power handover,' the minister said in a New Year message to the South's 655,000-member military. Leader Kim is widely believed to be promoting his third son Jong-Un as eventual successor. 'North Korea is continuing to expand its armaments despite a lack of food and serious economic challenges,' minister Kim said, calling on the military to stay alert to the potential threat. Kim Yeon-Chul, director of the independent Hankyoreh Peace Institute, said the ban on using foreign exchange was aimed at stabilising the value of the new won against overseas currencies. 'In the end, all will depend on whether the North will be able to curb inflation, especially whether it can rein in rampant food prices through a stable supply of food rations,' he told AFP. He said chronic food shortages eased somewhat this year thanks to favourable weather conditions and inflows from abroad, giving Pyongyang a chance to carry out the currency revaluation. Kim Yeon-Chul said the success of the revaluation and the forex ban would ultimately depend on progress in nuclear disarmament talks. 'Stability in commodity prices and wages depends on supply, which in turn relies on its ties with foreign countries,' he said.