North Korea embraces the euro

The state may be trying to control foreign currency

By Caroline Gluck BBC correspondent in Seoul

Communist North Korea has said it will stop using American dollars from Sunday and start using euros instead.

The decision was made soon after a US-led international consortium announced that it was halting fuel aid to the state because of its covert nuclear weapons programme.

But the move is seen by many analysts as an attempt by the authorities to exercise control over the foreign currency hoarded by its citizens.

The US currency has been used widely in the black markets

Foreign residents in Pyongyang are none too happy with the enforced currency swap and many have complained about the low exchange rates set by the North Korean authorities.

United Nations and aid organisations who normally run their international operations using dollars and local currencies say it will complicate their administrative arrangements.

They also suggest that the Communist state's attempts to trade with other countries in the region could be affected by the decision.

'Political response'

The US dollar has been widely used in the North Korea both for international transactions and domestically in shops and hotels.

No official reason was given for the move but many analysts believe the dollar ban is a direct political response to Washington's decision last month to halt fuel aid to the North because of its nuclear programme.

Others believe the move could also be an attempt by the regime to exercise state control over money held by private individuals.

Many North Koreans have substantial dollar savings kept at home, and dollars are widely used in the country's black markets and also in foreign exchange shops.