Keep a close eye on North Korea over the next few days. On Monday, its inmates citizens learned that all of their savings had been wiped out by their government’s arbitrary decision to replace all currency in circulation with new bank notes, whose new denominations will drop two zeroes. North Korea informed its subjects of the change via its closed-circuit cable radio system, which utilizes speakers installed in the homes of its citizens (think telescreen without the screen).

North Koreans will only be allowed to exchange 100,000 won each, about $40. The move has caused the kind of shock and outrage that North Koreans normally manage to hide from one another; this time, however, those invaluable new defector-run clandestine news services claim that people can literally be seen and heard wailing in the streets. State-run shops are closed as clerks re-price whatever goods sit on their shelves, intercity buses have stopped running, markets are in a state of chaos, and train stations are jammed with traders trying to get home. In Pyongyang, privileged citizens flocked to the countryside to buy up rice before the sellers got wise to the news. Others reportedly committed suicide. For the most part, however, a tense calm prevails for the moment, but the mood among ordinary citizens appears to more explosive than at any time in North Korean history, with people increasingly willing to curse their government openly. The regime, caught off-guard by the strength of the public reaction, has filled the streets with police and soldiers.

This decision, which comes just as winter begins, will create real hardship for many people. Ever since a famine killed up to 2.5 million North Koreans in the 1990’s, North Koreans have become increasingly dependent on the black market for their survival. In fact, more than half of the calories consumed in North Korea today come from private markets. If the markets cease to function, there could be a wave of food refugees trying to cross into China this winter. In the short-term, I wouldn’t want to be standing guard while embittered citizens jostle in long lines to trade away all they’ve scraped together to feed their families this winter.

As always, we can only speculate as to why this regime did this. If, as some suggest, it was meant to control hyperinflation, imagine just how much confidence market traders in North Korea will have in the domestic currency after this. From now on, North Koreans are likely to turn to U.S. dollars and Chinese yuan. Indeed, privileged citizens of Pyongyang already held much of their savings in those currencies, and a reported rush on dollars and yuan has probably made the rich much richer as a nascent middle class has become destitute overnight.

The exchange started yesterday, and so far, the situation in Pyongyang is said to be calm. In the short-term, it’s unlikely that local disturbances will overthrow the regime. North Koreans still lack an organized national opposition movement and have no means to communicate with their fellow citizens from village to village or city to city, except by train. If riots erupt, soldiers would be ordered to fire, and they would probably follow those orders. Eventually, the markets that people depend on for their survival will recover, and the new North Korean currency will lose value even faster because of this inexplicable decision. Aside from misery, hunger, a flood of refugees, and possible famine, the long-term effect is likely to be to shift plenty of North Koreans from the “disillusioned” to the “dissenter” category.

Unrest, and especially a heavy-handed response to it, would mark a substantial change in North Korea’s domestic politics, such as they are. It would also dispense with a few unhelpful illusions held by too many in the West and in South Korea — of a regime that enjoys popular support, with a genuine interest in economic reform, and goaded toward reform by unconditional aid policies. It could also refocus thought in the more practical direction of how to bring the Kim Dynasty to a close with the least possible loss of life. That formula, simply stated, is to contain it militarily, constrict it economically, and subvert it politically. Our last best hope is to help support an Albanian scenario — expanding sanctions against Kim Jong Il, catalyzing the replacement of a ruthless dictator with one less predisposed toward massacring his subjects, opening the way for a popular uprising, a transitional government, and a path to structured democratization and reunification on a fixed timetable.