North Korea's Central Bank building (Sogwang)

North Korea has decided to allow regional commercial banks to issue cashless bank slips, Daily NK has learned. The measure appears to be aimed at decentralizing the financial system and boosting the credibility of regional banks.

Speaking on condition of anonymity due to security concerns, a high-ranking reporting partner inside North Korea told Daily NK on Monday that the authorities have been authorizing regional banks to directly issue and manage cashless bank slips, a business-to-business payment method, since last month. Previously, that was the prerogative of North Korea’s Central Bank.

Cashless bank slips (haengpyo) are bank-issued certificates guaranteeing payment that enable cashless transactions. In principle, North Korean companies are supposed to use cashless bank slips to purchase machines, materials and other means of production.

To get cashless bank slips, companies have been required to deposit an equivalent amount in a bank account at the Central Bank or provide collateral of a similar value. But the new measures will allow regional banks to issue their own cashless bank slips after vetting companies’ collateral.

As part of the independent profit system adopted in the financial sector after Kim Jong Un came to power, North Korea has installed commercial banks in various regions and allowed them to manage their own financial affairs. Those banks are then expected to pass along part of their profits to the central government.

That seems to be the rationale for North Korea’s decision to grant regional commercial banks the authority to issue and manage cashless bank slips. The apparent aim is to streamline business-to-business transactions and strengthen the authority and accountability of commercial banks in the countryside.

“Since its adoption of the independent profit system in the financial sector, North Korea has been carrying out financial reforms aimed at strengthening the accountability of regional commercial banks under the current unitary banking system. The government appears to have given regional banks more authority and autonomy for turning a profit,” said Choi Ji-yeong, a researcher at the Korea Institute for National Unification, in a telephone interview with Daily NK.

Regional banks to play larger role in funding companies

While regional banks had previously been hampered by limited operating funds and low credibility, their new authority to issue cashless bank slips will empower them to play a bigger role in funding regional companies. That appears to be linked to the government’s recent policy of requiring certain individuals to sign up for installment savings accounts.

In fact, not only teaching staff but also officials at party, administrative and legal institutions, trading company staff, and workers at commercial enterprises and service agencies at the provincial, city and county level are required to enroll in the savings accounts, in which they must deposit a certain amount each month.

The savings accounts, being managed by regional banks, are expected to increase the funds available to those banks. The mandatory monthly installments seem aimed at concentrating individuals’ idle money at banks, giving them the liquidity to facilitate company loans.

Amid these developments, the cash vouchers (donpyo) that were supposed to play a similar role to the cashless bank slips do not seem to be working out.

The North Korean authorities had asked companies to use cash vouchers of KPW 50,000 in their transactions, but their small face value makes them an inconvenient payment method. Given the availability of cashless bank slips that can also be traded in place of cash, companies have not felt the need to use cash vouchers, the reporting partner said.

While North Korea has not officially scrapped cash vouchers, nobody is using them, which suggests that they will eventually disappear from the market.

Translated by David Carruth. Edited by Robert Lauler. 

Daily NK works with a network of reporting partners who live inside North Korea and China. Their identities remain anonymous due to security concerns. More information about Daily NK’s reporting partner network and information gathering activities can be found on our FAQ page here.  

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