Friday, March 4, 2011

"5.4% Interest from the Central Bank?"

Since this newspaper does not have an English site, I thought people with one eye on the economic pulse of North Korea would want me to translate this;

The Chosun Central Bank is said to have raised interest rates by 1.8 times. Customers are also now able to get instant access to their money. As a result, the bank's total deposits are also said to be growing.

These measures appear to be the bank coming forward to guarantee deposits given that people have been unwilling to put their money there since the 2009 currency redenomination.

North Korea watchers are observing the situation, saying that there is a chance that measures like these could be an indicator of financial sector reform.

Speaking on the 1st, one such source said, "I hear that the number of people putting their money in the bank is growing. The total reserves of the Chosun Central Bank are also growing. The causes of this are that access to withdrawals has recently been freed up and the interest rate has risen steeply." According to the source, the interest rate offered by the bank was previously 3%, but has recently risen to 5.4%.

The Chosun Central Bank is a government entity under the Cabinet, doing the job of both a central and commercial bank at the same time. It offers savings, loans and insurance services.

North Korean people can deposit money there and earn interest on it; in this, it is much the same as the Post Office, which also takes deposits and gives interest.

In terms of allocation in North Korea, the state does it by force, and there are also cases of deposits being coerced. Indeed, until now it has been hard for North Korean people to recover capital deposited with the bank.

The source explained, "At times when the economic situation has been bad, it has not just been hard to get interest, it has even been common to illegally have to give 20% of the value of the capital to Central Bank management and then take the rest," but added, "Recently, North Korean people have been able to get hold of their deposits surprisingly easily, and the rumor 'We can get our money! And the interest has gone up!' is going around."

Cho Byung Hyun of the Industrial Bank of Korea's research institute explained more, saying, "Following the failure of the 2009 currency redenomination, people disliked putting their money in the bank so, for the circulation of money, the bank instituted a policy of allowing instant access to deposits and raising interest rates."

North Korea suffered serious fallout from the currency redenomination, including rapidly rising prices and the execution of its architect, former Workers' Party financial planning head Pak Nam Gi.

However, it is also possible in part to interpret the failed redenomination as an opportunity to activate capitalist banking practices.

Cho went on, "We know North Korea has recently been preparing financial reforms. At the moment, banks under existing trade banks etc are controlled by the Central Bank, but this can be seen as propelling reform in the direction of giving independence to each bank."

Meanwhile, Professor Lee Sang Min of Joongang University economics department pointed out, "This can be seen as helping with the introduction of a capitalist system in North Korea in the long term. It is an opportunity for the North Korean people to learn about a capitalist banking system."

However, it is as yet too early to see this sort of phenomenon as meaning that the financial system of North Korea is settled. As one defector pointed out, "For this to develop into a system, the North Korean authorities shall have to spend a long time building trust."
Actually, there is one more paragraph, but that last one was so clearly the better end that I wanted to divide them. Nevertheless, here it is;
Another North Korea source added, "The dollar tended to be thought of by the North Korean people as the standard currency, but the Yuan is gradually moving to center stage." This is analyzed by experts as being down to recent economic exchanges between the North and China and the rising value of the Yuan.
Anyway, if true (and the usual caveats do apply, in my opinion extremely strongly) then it is an interesting piece, one which at the very least lends credence to the notion that North Korea is a land of extreme inequality. But it is also evidence of the fact that for some there is money available, and, along with news of the rush into Rasun, there is now a narrative which says that, in Pyongyang and among the upper echelons of the Party, state, military and indeed the markets, money is being made and spent.

Note I am planning to raise this with some high(ish) rolling former cadre sorts tomorrow, and see what they think. The jury is, then, out.


My source said that it is perfectly feasible that money earned through trade is being deposited, and that this is being encouraged via higher interest rates. However, he pointed out that the story will only be true for the trading activities of enterprises and government organs, which in any case makes up at least 80% of trading activity in North Korea today.

In the case of the other 20%, which can be seen as encompassing the economic activities of individual market traders, private farming and illegal payments made between individuals, he said there is still "absolutely no chance whatsoever, under any circumstances," that they would willingly deposit their money with the Central Bank.

Which, given that the self-same bank was the primary vehicle in the expropriation of the majority of most small- and medium-sized traders' assets just 16 months ago, makes a lot of sense.


  1. To comment your last paragraph I would dare to say that the private citizens of NK will never ever take their money to the bank free-willingly (that is not just now). Even the people who strongly believe in the system do not take their money to the bank. Practically you probably cannot even get a balance sheet of your account not to mention withdraw money. And even if you did get an access to your money it would still be safer to keep the money in the chimney of your house.

    I have read quite a lot on NK analysis and this is one of the many features strikingly similar to Soviet Union.

  2. Too true. I daresay the only way they manage to get enterprises to put their money in the bank is by making it the only way to make large payments to Chinese partners.