Is Change Coming to Korean Peninsula?

NEW YORK (BBH FX Strategy) -- Last month marked the 20th anniversary of the collapse of the Soviet Union. It also marked Russia's ascension to the World Trade Organization. Its recent aspirations had been frustrated largely by a single country in recent years -- Georgia. There is a sense that a new era is at hand.

The end of the Cold War, the rise of China, and the collapse of the House of Finance and the deregulation and financial liberalization associated with the political success of both Thatcher and Reagan, have contributed to a sense of this new era. This is true even if the dimensions and contours of this new period have not yet ossified, making them unclear and still malleable.

Bump and Grind

As we have observed previously, change often comes in one of two varieties. Sometimes the change takes place over a long period of time. Typically, weather and demographics fall into this category. They are grinds. Alternatively, change can take place in a relative short period of time and yet have dramatic effects, like 9/11 or the collapse of the Soviet Union itself. These are bumps.

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The death of North Korea's Kim Jong-il in the middle of December can be either a bump or grind. More likely, the change of leadership will mark a continuation of the status quo. Not only do North Korea's elite and military seem firmly in control, but the international focus is North Korea's acquisition of nuclear weapon capability.

Kim Jong Un, front left, salutes beside the hearse carrying the body of his late father and North Korean leader Kim Jong Il during the funeral procession in Pyongyang, North Korea Wednesday, Dec. 28, 2011.

Outside of weapons of mass destruction, there are more pressing problems than this vestige of the Cold War for most stakeholders. South Korea itself is somewhat ambivalent. It favors unification in principle, but in practice, it seems to be in no hurry. It is not exactly clear what Russia and Japan gain from the unification of the peninsula outside a larger rival and potentially some increase in trade.

China would be able to reduce its aid to North Korea, which the Chinese magazine Caixin estimates could be as much as 40% of China's foreign aid. However, the risk of that the united peninsula is dominated by U.S. interests may be of greater concern.