BEIJING, Dec 30 (Reuters) - Communist North Korea will ban the use of foreign currencies in markets and shops, China's official news agency said, citing a directive that appears to part of Pyongyang's efforts to tighten its grip on the economy.
The impoverished and reclusive state has tried to keep foreign currency out of the hands of ordinary people because its possession allows them to conduct commerce outside of the planned economy, which could weaken the grip of the state.
North Korea also recently abruptly announced a revaluation of its currency so old notes of its won currency will be exchanged for new ones at a rate of 100 to one. [ID:nSEO111754]
The directive from North Korea's Ministry of People's Security seen at one of Pyongyang's commercial markets said that from Jan. 1, residents will not be allowed to directly pay with dollars, euros or other foreign currencies for food, goods and other retail items, Xinhua news agency reported.
"Foreigners with foreign currency will also have to exchange it for North Korea's own currency to use it," the report added, citing the announcement.
The new measure would also apply to hotels and airports, the report said, adding that banks would establish foreign exchange services.
The announcement appears to build on North Korea's recent efforts to reassert control of the long-struggling economy, which has been increasingly exposed to small but growing market activities and black market trading.
Until now, foreign visitors to North Korea used currencies including the U.S. dollar and euro to pay for items in North Korea and were not allowed to use the local currency.
The move could add to public worries about the direction of the economy, with many citizens jittery about any savings they have built up in foreign currencies. U.S. dollars, euros and the Chinese yuan are also widely used in foreign trading. [ID:nTOE5B80BM]
A cap on the amount of currency that can be exchanged could wipe out anyone holding too much wealth in North Korean won. But with the latest announcement, their avenues for spending the money in markets may also be choked off.
"The relevant authorities will adopt measures to establish strict order for the circulation of the national currency," the directive said, according to Xinhua.
The Xinhua report first appeared on Tuesday and was more widely reported by Chinese state media on Wednesday.
It also warned that businesses breaking the new restrictions would be shut down and their property confiscated, and illicit foreign exchange deals would be "harshly dealt with."
(Reporting by Chris Buckley in Beijing and Jon Herskovitz in Seoul; Editing by Nick Macfie)