 Image: Daily NK |
Private enterprises are gaining momentum
and foreign currency is being circulated at an unprecedented scale in
contemporary North Korea, stated a panel of experts close to the issue at the recent seminar
“Doing Business in North Korea: Business and Finance in the DPRK” held in
Seoul.
During the packed conference, hosted by
IFES (Institute for Far Eastern Studies) and Friedrich Naumann Foundation (FNF)
and held at Kyungnam University, prominent voices in the field, including Andrei Lankov, a professor at Kookmin University; Eul
Chul Lim, the Director of Research at IFES; and Wen Cui, a professor at Yanbian
University; gathered to share insights into a topic gaining steam and garnering global interest.
After opening remarks by Lars-Andre
Richter, head of FNF’s Korea branch, Lankov dove into matters pertaining to
North Korea’s banking system, explaining that while one does exist, it is
deeply embedded in “a hyper-Stalinist, central command economy,” and that the
banks are “highly dysfunctional.”
“It is almost universally believed by North
Koreans I have interviewed that making a deposit in a state bank is a foolish
deed,” Lankov explained, adding that while North Korean citizens can in fact
withdraw their money, banks make it exceedingly difficult for them to do so.
There are many reasons for the inefficiency of North Korea’s banks, but Lankov cited regulations
as the primary reason: banks were prohibited since the very beginning from
dealing with individuals or providing credit to consumers. This is because
credit was seen unnecessary in a socialist state where provisions are supposed
to be distributed. Needless to say, issuing foreign currency was also not common practice.
Despite North Korea’s aversion to foreign
currency, a common characteristic of other socialist states in the 1980s,
outside legal tenders—particularly USD and RMB — have loomed large since North
Korea’s marketization, gaining increasing momentum since North Korea’s famine of
mid-1990s known as the “Arduous March,” during which residents began to take to the
markets to survive.
Further galvanizing foreign currency usage
in the North was the botched 2009 currency redenomination, reducing residents’
savings to worthless bits of paper and shattering any remaining trust they had
in domestic currency. As North Korean citizens began to view foreign currency
as safer and more valuable, they turned to USD or RMB for all large transactions, leaving only small transactions to be made in domestic currency.
Moreover, China’s geographical proximity to
and porous border with North Korea have contributed significantly to the influx
of yuan. This, in conjunction with high number of relatives of North Koreans
residing in China, has seen the border regions dominated by yuan in the last
decade. Further inland, particularly in Pyongyang,
both RMB and USD are in wide circulation.
Cui attested to both the prevalence of
foreign currency and the introduction of the “Narae” card, appearing in
December 2010 to enable electronic payments of foreign currency. This
development greatly improved the turnover of capital and expedited the flow of commodities.
More recently, in early 2015, an e-commerce system called “Okryu” was launched.
Lim pointed out that these developments are proof positive of the fact that despite the illegality
of financial markets in North Korea, they sprang up as a result result of the
central bank’s loss of the ability to disburse and receive financial revenue;
the failure of the state financial system left the state no choice but to countenance transactions between organizations, businesses, and
individuals.
While the North Korean government permits
contracts and interests only to institutions and businesses–that is, not to
individuals–this has done nothing to preclude high-interest loans from
taking off between individuals–another among a litany of signs that North
Korea’s economy is developing traits characteristic of capitalist societies, he
added.
Looking to the future, Cui proposed some
possible avenues for economic reforms in North Korea, including fostering
export-led industry and creating a successful model of Special Economic Zones
(SEZs) and Economic Development Zones (EDZs). According to Cui, North Korea
should select a few EDZs that have a high probability of success and provide
significant support to local governments’ development efforts.
In the financial arena, Cui advocated for
the establishment of commercial banking work in a number of North Korea’s Central Bank branches. Implementing this measure on a trial basis would help minimize side
effects, he asserted. Joining an international financial organization would also be advisable, presenting North
Korea with the opportunity to attain low-interest, long-term loans as well as
drawing in international private capital.
However, this would be contingent on
North Korea introducing a market economy and publicizing national economic
statistics, which Cui conceded Pyongyang is unlikely to do anytime soon.
Still, tangible shifts within North Korean
society are prevalent, particularly when we turn our attention to the
increasing number of services and diversity of goods in the country. James
Pearson, a correspondent for Reuters in Seoul, spoke to this point, citing news from
a source in Pyongyang regarding the existence of private bus companies, noting in particular a route running from between Pyongyang and Pyongsong–something
that would have been more or less unheard of just a few years ago.
Moreover, whereas
state factories only used to produce one type of toothpaste, he added, they now produce multiple kinds to attract different parts of the North Korean consumer
market.
Lim expounded on this, showing the audience
a host of photos emblematic of shifting consumer trends. Of particular
interest among these photos was one featuring a recent hamburger sold in North
Korea, largely indistinguishable from any burger sold in a western
fast food chain.
Just three years, Lim said, the hamburgers he witnessed being
sold in the North were mostly bun surrounding a flat, unappealing patty of
meat. This rapid transition and improvement, he concluded, are indicative of
broader progress being made in the country.
