In Poland (and I imagine other socialist countries), people who made a bunch of money took pains not to get stuck with cash, for exactly this reason.
Since it was illegal to own foreign currency, a popular solution was to buy and store grain alcohol, on the assumption that no conceivable change in political system would ever make booze lose its value.
The approach had two main drawbacks - you needed a fair amount of space to store large quantities of ethanol, and you had to safeguard the storage room against the depredations of local aficionados.
I grew up in Costa Rica in the late 70's and early 80's. The country had massive currency devaluation because they started printing massive quantities of currency to pay their foreign debt. The exchange rate went from 8 Colones : $1 to 130:$1 in a matter of a few short years.
People started hoarding dollars and those that had commodities did very well. There was a very brisk black market trade in foreign currencies.
My father purchased a small car, at the begining of the currency crash and frove it into the ground on the terrible riural roads and then sold it 5 years later. He made a $30 profit on the deal because car prices had gone up so dramatically.
We did fine, because we got paid in dollars, but the people around us really suffered.
Yes, you are correct in respect with local currency. However, in my country there used to be quite vibrant currency black market instead of alcohol storing. People most often replaced all excess local currency with deutsch marks. At the expense of exorbitant fees, of course. But it was still better to have some deutsch marks than none.
All of it was of course illegal, but the government wasn't too keen to penalise such behaviour. At least I don't remember anyone getting caught.
This seems like one of those hypothetical microeconomics questions... you know, the ones that are never really supposed to happen.
"It also reported instances of wealthy people from cities rushing to rural areas on Monday in hopes of buying commodities with the old currency before people in those areas heard about the exchange process."
what's happening in north korea is an abomination of human rights infringements. i think most westners, especially those who's countries never experienced communism, can't really imagine/comprehend daily life there. I watched this documentary on North Korea a while ago and found it very interesting [http://educatedearth.org/video.php?id=2642]
What if people disagree and just keep using the old currency among them ?
Yeah, I guess they'll get shot.
Also, the mention of "closed-circuit system that feeds into speakers in homes and on streets but can't be monitored outside the country" reminds me so much of Brave New World/1984/Big Brother stuff.
A similar theft happened in Brazil in 1990. It wasn't done by a crazy dictator. In fact it was right after the first democratic presidential election in decades.
All investments, CDs, savings accounts in excess of around U$1000 were "frozen".
It didn't affect the masses, who didn't have bank accounts anyway. But the middle-class was screwed.
The North Korean weirdness differs only in degree, and not in kind, from the everyday actions of every government that issues fiat (non-gold-backed) currency.
That is very sad and reminds me of Soviet Union collapse.
Old people who saved their entire lives had bags full of money that suddenly became worthless ( well some used it as a toilet paper...).
It's a recurring theme in Russian movies from 90's , bag of useless cash.
PEOPLE !
The most important thing in your life is your close ones.
Vaguely similar currency-expiring policies have been suggested for the US, as well. See this column from Harvard's Gregory Mankiw in April of this year:
Very similar to the Pavlov monetary reform in the Soviet Union - I was just a kid but I can remember that:
"Within hours of the stunning announcement, massive lines had formed in the bitter, early-morning cold, waiting for banks to open. "People are afraid," says Vladimir Kuzmichov, a retired engineer nervously fingering his cash notes outside a Moscow bank. The Soviet state bank had just proclaimed that all 50- and 100-ruble notes would be banned and saving accounts would be partly frozen. Each person could exchange up to 1,000 rubles, the equivalent of less than four months' average pay, for small-denomination notes."
WTF? - "North Korea's official news agency, TV station and major newspapers, which are monitored in South Korea and Japan, by late Wednesday still had not announced the currency exchange. Instead, authorities continued to transmit information through a closed-circuit system that feeds into speakers in homes and on streets but can't be monitored outside the country."
Can we just buy the country and let the leaders go into exile?
This illustrates why government should not be trusted with the control of money. What N. Korea is doing is massive theft, but so is the issuing of any fiat currency. The Federal Reserve is just a better thief than N. Korea because it steals at a slower, smoother rate, thus not totally killing the incentive to produce.
Very different. This is capping, not just devaluating. If you're devaluating, let's say, by 10%, if you had $10 you will have $9 (it will be still $10 but it will be only worth $9), if you had $100 you will have $90, if you had $1000 you will have $900, etc.
In this case, they're capping as well at $40. If you had $10 you will still have only $9, but if you had $100 (or $1000 or a million) you will only have $40. That's it. That's not just taxing wealth, it's taking all the wealth away.
Maybe I'm totally missing something, but how exactly do they expect their citizens to buy food now? If everyone suddenly has $40 and that's it, that sounds an awful lot like an awful lot of people are going to starve to death.
Well, there are several levels of answer to your question. First of all, there are no currency exchange there and people are not allowed to have a foreign currency (USD). So this "equivalence" is established with black market exchange rate which represents not the parity of prices of commodities but the (high) value of USD for the back market participants. It is normal since the black market participants are involved into contraband and they need foreign currency badly.
So for $ 40 in black market exchange rate you can get a lot of food there.
The second level of the problem is that the food/goods market there is government-controlled and for some goods there is no market at all - they are centrally distributed by the executives. So the amount of savings is not directly connected with the consumption level.
And the next point is that the person who have a job and a regular paycheck doesn't need to have a lot of savings in order not to starve. As I can understand the social contract of the socialists' states is the lack of unemployment, so anyone is employed even if his work is not needed.
They're supposed to depend on the government. Having $40 in your pocket would force you into the bread lines pretty quick, eh? And if you're in the bread lines it becomes a lot harder to actively protest the government....
Given that it's happened before there, I'd favor commodities to currency. It's hasn't been a bad strategy when your government is creating new money at rapid rate and calling it quantitative easing either.
The hard part is choosing the commodity, and figuring out how to store it. If you really think all hell is going to break loose, to the extent that the dollar might one day lose a bunch of its value overnight, then you are limited to stuff you can store in your own house, with all the attendant security problems.
This only affects paper cash though, right? So assuming they have most of their value in a bank, savings, stock, physical assets, or whatever it is they do in "DPRK," then they should be sort of okay.
But I have nooo idea how the banking thing works in DPRK. For all I know, everyone's "bank" is a box filled with cash. Which would make this currency switch suck a lot.
You are partially right. Not about the banking system (which is as much a joke and tool of the NK government as the currency), but insofar as you are better off if most of your assets are in the form of rice or some other physcial commodity. On the other hand, it's pretty likely that having more than a certain quantity of any commodity outside a government-operated warehouse is classified as 'illegal hoarding' and would be grounds for confiscation and imprisonment. North Korea practices such an extreme form of socialism that private property is a meaningless concept there. For all practical purposes it is a feudal society which claims all people, land and commodities as state property.
[+] [-] idlewords|16 years ago|reply
Since it was illegal to own foreign currency, a popular solution was to buy and store grain alcohol, on the assumption that no conceivable change in political system would ever make booze lose its value.
The approach had two main drawbacks - you needed a fair amount of space to store large quantities of ethanol, and you had to safeguard the storage room against the depredations of local aficionados.
[+] [-] iamelgringo|16 years ago|reply
People started hoarding dollars and those that had commodities did very well. There was a very brisk black market trade in foreign currencies.
My father purchased a small car, at the begining of the currency crash and frove it into the ground on the terrible riural roads and then sold it 5 years later. He made a $30 profit on the deal because car prices had gone up so dramatically.
We did fine, because we got paid in dollars, but the people around us really suffered.
[+] [-] jan_g|16 years ago|reply
All of it was of course illegal, but the government wasn't too keen to penalise such behaviour. At least I don't remember anyone getting caught.
[+] [-] DrJokepu|16 years ago|reply
[+] [-] misterbwong|16 years ago|reply
[+] [-] tikhon|16 years ago|reply
[+] [-] riobard|16 years ago|reply
[+] [-] huangm|16 years ago|reply
"It also reported instances of wealthy people from cities rushing to rural areas on Monday in hopes of buying commodities with the old currency before people in those areas heard about the exchange process."
[+] [-] turkishrevenge|16 years ago|reply
As an example, here's Juche, the official state ideology, summed up in an exchange:
Peasant: "I am hungry. I need bread".
Soldier (part of the supposed "revolutionary" class): points gun at peasant. "Are you hungry now?"
Peasant: gulp "No".
Stalinism to its logical conclusion.
[+] [-] idleworx|16 years ago|reply
[+] [-] jlgosse|16 years ago|reply
[+] [-] etherealG|16 years ago|reply
[+] [-] joss82|16 years ago|reply
Yeah, I guess they'll get shot.
Also, the mention of "closed-circuit system that feeds into speakers in homes and on streets but can't be monitored outside the country" reminds me so much of Brave New World/1984/Big Brother stuff.
[+] [-] sdfx|16 years ago|reply
[+] [-] sirrocco|16 years ago|reply
When we recently slashed a few zeros from our currency (denomination i believe it's called) they were afraid that the same thing would happen again.
[+] [-] nandemo|16 years ago|reply
All investments, CDs, savings accounts in excess of around U$1000 were "frozen".
It didn't affect the masses, who didn't have bank accounts anyway. But the middle-class was screwed.
[+] [-] asciilifeform|16 years ago|reply
[+] [-] myth_drannon|16 years ago|reply
PEOPLE ! The most important thing in your life is your close ones.
[+] [-] lecha|16 years ago|reply
[+] [-] gojomo|16 years ago|reply
http://www.nytimes.com/2009/04/19/business/economy/19view.ht...
[+] [-] Evgeny|16 years ago|reply
"Within hours of the stunning announcement, massive lines had formed in the bitter, early-morning cold, waiting for banks to open. "People are afraid," says Vladimir Kuzmichov, a retired engineer nervously fingering his cash notes outside a Moscow bank. The Soviet state bank had just proclaimed that all 50- and 100-ruble notes would be banned and saving accounts would be partly frozen. Each person could exchange up to 1,000 rubles, the equivalent of less than four months' average pay, for small-denomination notes."
http://www.businessweek.com/archives/1991/b319837.arc.htm
[+] [-] protomyth|16 years ago|reply
Can we just buy the country and let the leaders go into exile?
[+] [-] shiranaihito|16 years ago|reply
[deleted]
[+] [-] dpatru|16 years ago|reply
[+] [-] CWuestefeld|16 years ago|reply
[+] [-] DrJokepu|16 years ago|reply
In this case, they're capping as well at $40. If you had $10 you will still have only $9, but if you had $100 (or $1000 or a million) you will only have $40. That's it. That's not just taxing wealth, it's taking all the wealth away.
[+] [-] sliverstorm|16 years ago|reply
[+] [-] naa42|16 years ago|reply
[+] [-] blahedo|16 years ago|reply
[+] [-] mattmcknight|16 years ago|reply
[+] [-] idlewords|16 years ago|reply
[+] [-] shughes|16 years ago|reply
But I have nooo idea how the banking thing works in DPRK. For all I know, everyone's "bank" is a box filled with cash. Which would make this currency switch suck a lot.
[+] [-] idlewords|16 years ago|reply
[+] [-] anigbrowl|16 years ago|reply