U.S. Army photo by Edward N. Johnson

Soon after President Barack Obama's inauguration in January, North Korean dictator Kim Jong Il welcomed him in typical fashion by testing another nuclear weapon. Mr. Obama reacted firmly by suspending the six-party disarmament talks and imposing tough sanctions. But a year later the Obama administration is poised to begin the talks anew.

That would be a mistake. As American diplomats coax North Korea to return to the negotiating table, a far more significant drama is unfolding: serious instability within the hermit kingdom. This time the Kim regime may really fall, and the Obama administration would be wise to get out of its way.

Kim appears to have finally crossed a line with his own people when he let his son and chosen successor, Kim Jong Un, announce a currency revaluation last month. The Kims were threatened by the growth of a small, independent merchant class and decided to destroy it through a surprise currency revaluation. As many North Koreans lost what little wealth they had and the Kims all but destroyed the small private sector, the public responded angrily. There have been reports of protests and riots, with many North Koreans publicly burning their newly worthless currency--a rare sign of political dissent for North Korea's long-suffering populace. The regime was so concerned that it sent its security minister to China to ensure that Beijing prohibit a mass exodus of North Koreans across its border.

Riots by themselves are not proof positive of internal instability, but in an even more uncommon development, the Kims were forced to ease up a bit: North Koreans were allowed to exchange more of the old currency for new won notes. The partial reversal may have tamped down public unrest, but North Korea's beleaguered population demonstrated that they still have some fight left in them.

With protests that forced a policy change, a sanctions regime that has so far deprived Kim of at least $18 million, and uncertainty about the Dear Leader's succession plan, it may well be that this time around Kim is truly running out of money and possibly control.

Rather than bail him out, Washington should let Kim fall. It's the best chance the U.S. has of achieving its twofold objectives: denuclearization in North Korea and the eventual unification of the peninsula. After all, the Kim clique has made it clear after decades of negotiations that no amount of aid will suffice to induce them to end their nuclear program. The relatively conciliatory response to Special Envoy Stephen Bosworth's mission earlier this month--the North Koreans declared that "differences" have been "narrowed"--was a classic North Korean negotiating ploy, not an eleventh-hour acceptance of a nuclear-free world.

Some might argue that a desperate Kim may really make a deal this time--and Pyongyang certainly needs the bailout it is sure to receive during a new round of talks. But history suggests a dying regime is far less likely to make lasting concessions. Successful disarmament has occurred in places like the Ukraine and South Africa only after a new regime one looking for assistance and legitimacy, came to power.

The question is which course is riskier: Letting Kim fall while planning for Korean unification, or attempting to prop up a dangerous regime with a growing arsenal of nuclear weapons? If Washington and its allies plan well, the former has the better chance of succeeding.

South Korea and the U.S. have been upgrading their contingency planning for a collapsed North Korea for years, but there's more to be done. Better coordination with Tokyo is key, as Japan has serious concerns about the future of the Korean peninsula. Tokyo does not want a Chinese puppet state to emerge in North Korea.

All three allies should agree upon short- and long-term goals. In the short term, the allies must rid the peninsula of weapons of mass destruction, secure "loose nukes" and deal with the humanitarian and refugee crisis that is certain to unfold. In the long term, the allies must craft a roadmap for unification under Seoul's rule.

Allowing Kim to fall is admittedly not without its risks, and the real wild card is China. Beijing has been very secretive about its own Korean doomsday planning. The Chinese have let leak that they would send in the People's Liberation Army to "stabilize" North Korea. Premier Wen Jiabao and Minister of Defense Liang Guanglie have both made recent visits to Pyongyang. Mr. Liang made exuberant comments pledging everlasting Sino-North Korean unity, but other than that very little is known about these trips.

Unilateral action by China in North Korea would be highly destabilizing. All of Asia's powers have vital interests on the peninsula, and all will act to secure to them. But a great power struggle in North Korea would be a disaster.

Rather than count on Beijing to behave as a "responsible stakeholder," the U.S. should elevate to the top of its China "to do" list the sharing of its contingency plans and its knowledge of pretenders to the North Korean throne. If the U.S. does not succeed in this endeavor, it must make clear to Beijing allied objectives for stabilizing North Korea. Beijing's choice should be made stark: Cooperate or sit aside as the allies plan for unification on their own terms. If the Obama team's recent outreach to China is to have any serious payoffs, then these talks with Beijing need to start now.

The last thing President Obama wants is another military crisis, especially in a part of the world that has been relatively stable. Closer allied planning and a more forceful attempt to secure Beijing's cooperation is a trade-off--short-term diplomatic discomfort for long-term peace and stability. The choice should be obvious.

Daniel Blumenthal is a resident fellow at AEI. Leslie Forgach is a research assistant at AEI.