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BOK Working Paper No.2021-6, Changes in North Korea’s Financial System During the Kim Jong-un Era - Based on North Korean Literature

Economic Research Institute (82-2-759-5188) 2021.02.24 372

Title : Changes in North Korea’s Financial System During the Kim Jong-un Era - Based on North Korean Literature
Author : Minjung Kim(BOK), Sung Min Moon(BOK)


This paper analyzes the changes in financial reform during the Kim Jong-un era based on North Korean literature. We find that North Korea has systematically and functionally separated the central bank from commercial banks since the Kim Jong-un era began. In addition, enterprises have been allowed to withdraw cash from bank accounts and make inter-enterprise cash payments. In other words, nowadays non-cash currencies with passive money can partially serve as active money with purchasing power. With the systematic and functional separation of the central bank and the commercial bank, the issuance of the central bank changed to a money supply method through the commercial bank, and changes in the currency distribution structure have allowed commercial bank’s credit creation function to be implemented. This means that the banking system and the monetary·payment system of the socialist planned economy are changing in the way of the market economy.
Reforms in the financial sector are believed to have been necessary to support changes in the economic system and to restore the function of the public financial sector. These changes have progressed in terms of the level of reform, but they are still considered similar to the period of the former Soviet Union's Perestroika or to the early period of China's reform and opening. In addition, it is assessed that institutional constraints such as maintaining a planned economy, and the lack of confidence in public finances limit the effectiveness and development of the financial system.
It should be noted that these results are based on literature published in North Korea. In other words, there is a limit in the fact that such recent changes have been carried out on a trial basis in some areas, or have been carried out in a full-scale manner with a blueprint, since Kim Jong-un's inauguration.