Archive for the ‘Central Bank’ Category

DPRK replaces 5,000 won note

Monday, August 18th, 2014

UPDATE 3 (2014-9-2): Simon Cockerell has posted a photo of the new note to his instagram account. You Can see it here.

UPDATE 2 (2014-8-18): According to the Daily NK:

Daily NK has learned that the recent 5000 KPW note exchange has prompted an overall apathetic response from residents in North Korea. As Daily NK first reported here on July 31st the North Korean authorities informed residents that the largest denomination monetary unit would be replaced with a new bill.

US Dollars and Chinese Yuan being the currencies of choice in the markets, the recent collection and exchange of the highest denomination bill “doesn’t really affect people’s lives.”

A source in the capital reported to Daily NK on August 14, “A new [5000 KPW] note has been issued, but the exchange of old to new notes hasn’t made much headway.” This is hardly a nuisance to most residents, who are used to adapting, she went on to explain. “People are fairly indifferent about the new 5000 bill, and anyone who expresses concern about it is considered to be a fool by others.”

Production of the new 5000 KPW notes began last year; at the end of July 2014, the Chosun Central Bank announced that residents would have until 2017 to exchange the old bills. “At first, residents didn’t know what the exchange rate would be when they converted to the new bills, so a bit of chaos ensued; once they found out it was a 1:1 exchange rate, things have been pretty quiet of late,” she explained. “The number of residents holding 5000 KPW notes is pretty low so there isn’t an atmosphere of concern surrounding the matter.” The source did add that it cannot be verified at this time if those in rural or farming areas are equally as impervious to the matter.

The source cited two chief factors underpinning this resident indifference: trust in the authorities continues to decline, as does the value of North Korean currency.

The 5000 KPW bill is the largest denomination of bill in North Korean currency, but when compared with foreign currencies like Chinese Yuan or US Dollars, its value is dismal, considered by most to be “wastepaper.” By current exchange rates, 1 USD is equal to 8000 KPW; in other words, the largest note in North Korea [5000 KPW] is less than 1 USD or equal to approximately 5 RMB.

Moreover, at current market prices, 5,000 KPW [6000 KPW per kilo] is insufficient for people to purchase a kilo of rice or a dozen eggs [5000 KPW yields six eggs at present]. “Even when people buy a block of tofu [700 KPW], they use dollars,” the source explained. “Because merchants only do business in US Dollars of Chinese Yuan, people save all their money in these currencies.”

Citing the 2009 currency reforms, she explained the shift in public sentiment on the KPW, “People won’t suffer any losses even if there are 10 more currency reforms. Even those in poorer, rural areas regard North Korean currency as something for ‘use by the state’ and keep their assets in rice and other goods. ”

This shift in attitude of North Korean currency as “means of exchange” to “means of savings” occurred during and after the Arduous March in the 1990s [the North Korean famine if 1994-1998]. After ceasing distribution of regular food rations, starvation quickly became rife. In order to minimize dependency on a broken state system, people sought to build assets by saving as much KPW as possible.

Tragically, those savings were reduced to worthless scraps of paper during the currency reforms in 2009.The goal of the currency redenomination of November 30, 2009 was officially to bring inflation under control and eliminate monetary overhang, but the result of the 100:1 redenomination was catastrophic. This led to a complete transformation in resident commercial activity. The North Korean residents lost complete faith in state-issued banknotes and adopted foreign currencies, namely Chinese Yuan and US Dollars, as the preferred legal tender for business transactions.

“Because KPW is ‘not even worth counting’, there are more and more people who don’t care about the new 5,000 won bill,” she went on. “Instead of curiosity or trepidation as to the motivations behind the exchange, people just feel reassured by holding onto foreign currency.”

Once the privilege of traders and Party officials working abroad, accessibility to these foreign currencies has trickled down to market vendors and young students. Daily NK has recently learned that markets in all major cities in the North even provide small change back to customers in US Dollars and Chinese Renminbi.

Read the full story here:
Residents Indifferent to 5000 KPW Swap
Daily NK
Seol Song Ah
2014-8-18

UPDATE 1 (2014-8-12): Chris Green has more at NK News here.

ORIGINAL POST (2014-8-11): According to the Choson Ilbo:

North Korea’s new 5,000 banknotes no longer feature a picture of nation founder and demigod Kim Il-sung. But the new note shows Kim’s childhood home in Mangyongdae.

The new bills feature the house prominently on the front and on the back a museum in Pyongyang that displays gifts Kim and his son Jong-il received from foreign leaders*.

During a botched currency reform in 2009, Kim Il-sung was also dropped from the 2,000 and 1,000 won bills.

The 5,000 won note is North Korea’s largest denomination and nominally worth around US$50, though its actual market value is nearer $1. Workers in the North Korean state economy are paid some W3,000 a month on average, making it vital for most to seek other forms of income.

A North Korean source said when the new notes were officially announced on July 25, they sparked fears of yet another misguided currency reform, triggering a certain amount of chaos as food prices surged temporarily and some people began stockpiling food.

* Presumably the Choson Ilbo is referring to the International Friendship Exhibition at Myohyangsan. This is not in Pyongyang (Though it used to be!).

Read the full story here:
N.Korea Drops Kim Il-sung from New Banknotes
Choson Ilbo
2014-8-11

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Babson on post-Jang economic management

Monday, February 24th, 2014

Writing in 38 North, Bradley Babson comments on the effect Jang Song-thaek purge will have on North Korea’s economic management moving forward:

With Jang’s demise there is now a potential opportunity to make fundamental changes in the North Korean economic management and financial systems. Removing his influence over major foreign exchange earning enterprises operating outside any institutionalized supervision means that some other mechanisms must be put in place to manage these important national resources. Whether this will lead to a more rational system of cabinet-managed financial institutions serving an economic development strategy endorsed by Kim Jong Un is a basic question. Early indications are that the cabinet will be empowered to exercise more centralized control over the economy,[2] but how far this will extend into the fragmented financial system remains to be seen.

One indicator of possible significant change is whether the KPA will regain its former economic independence or become more closely integrated with national economic and financial management. This is important for improving efficiency in allocation of resources for economic development and having more control in balancing security expenditures with investments in the general economy.

Another indicator will be whether the existing system that provides funds for sustaining luxury goods patronage for the Pyongyang elite and for showcase projects like equipping the new Masik Pass ski resort, will be handed over to new more loyal technocrats to manage. Or will the Cabinet be given more latitude to shape the future political economy and distribution of wealth, given the reality that access to market power is becoming more valuable for the Pyongyang elite than receiving patronage? This would be a major change that could lead to new incentives for more rational economic management. Acknowledgment that markets are here to stay would open the possibility of addressing the need to build new financial institutional capabilities required for mobilizing and regulating private savings and economic activity. This would also help focus attention on ways to improve macroeconomic management of the mixed state-directed and market economy system.

Read the full story here:
The Demise of Jang Song Thaek and the Future of North Korea’s Financial System
38 North
Bradley Babson
2014-2-24

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Insurance in the DPRK

Thursday, July 12th, 2012

Jakub Rehor and Geoffrey See of Choson Exchange post interesting information on insurance in the DPRK:

According to the Choson Exchange:

In the planned, state-controlled economy of North Korea, familiar concepts (including insurance) acquire a very different meaning. In a market economy, insurance coverage indemnifies individuals or corporations for losses suffered due to natural disasters, accidents, sickness, or death. In North Korea, what is called “insurance” functions as a fundraiser for certain entities in the government.

There are two kinds of insurance products in North Korea, individual and enterprise insurance. Both are compulsory and are administered by KNIC (Korea National Insurance Corporation). Compulsory individual insurance is deducted automatically from salaries, and is used to fund the state-run healthcare system. Individuals cannot file claims under this insurance; all payments go into the healthcare system to cover its costs and to other state-directed uses. This individual insurance program was originally administered by Korea Central Bank, but parts of it were moved to KNIC where it formed a new department.

Individuals do not have the option of buying property or life insurance in DPRK. Only state-owned enterprises can use property insurance. Compulsory enterprise insurance covers property losses from all major perils (there is exclusion for war). There are no separate policies or riders for windstorm, earthquake, flooding, etc. Instead, policies specify coverage by type of property (animal insurance, machinery insurance, etc.)

Pricing is set without regard to individual risks and loss history. Rather, insurance operates on a pooled basis, with the goal of roughly matching premiums with claims and administration costs. There are no reserves and the state absorbs any losses or profits. As a result, KNIC has no incentive to care about profitability or correct pricing (and, presumably, service) for local insurance operations priced in North Korean won.

There is no independent regulatory authority in DPRK overseeing KNIC’s activities. In theory, the Central Bank and Finance Ministry should be involved, but in reality they don’t have the expertise or political backing. The only oversight of KNIC comes from the party which provides mainly political supervision.

Given the pooled nature of the compulsory policies and lack of risk-based pricing, KNIC acts mainly as an administrator, collecting premiums and disbursing payments. In this position it functions as a revenue generator for the government via two channels:

1. It fails to pay market replacement value of losses. Claims are settled at official government prices which do not reflect market reality.

2. It has been alleged that KNIC has been involved in reinsurance fraud. Media reports claim that European reinsurers write policies for KNIC which then submits false claims, or retains a portion of the claim settlement payments rather than passing it on to the insured.

The existing insurance arrangements in DPRK are clearly inadequate for the needs of foreign joint ventures operating in the Special Economic Zones. If North Korea hopes to attract foreign investment, it needs to modernize its insurance system to bring it into line with expectations of outside investors.

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Friday Fun: Fashion, Beer and Coca-Cola

Friday, September 30th, 2011

North Korean Fashion Archives

Choson Exchange posted the following on their web page:

During our last trip, we met with Korea Daesong Bank, which kindly provided a product catalog from the 80s/90s of their parent company – Korea Daesong Economic Group (KDEG). While fashion definitely has moved on in Pyongyang, we thought that it might be good to share some of the products they display in their catalog – for old times sake. In case you decide that the retro look is for you, do note that KDEG is currently under international sanctions.

Choson Exchange posted the pictures to their Facebook Page, but since there are many people who cannot (or do not) access Facebook, I thought I would post the pictures here:

American beer popular in the DPRK?

Pictured above (left) is a bottle of Budweiser served with dry fish aboard the recent Mangyongbong-92 “cruise” from Rason to Kumgangsan.  Learn more here. Pictured above (right) is a can of Pabst Blue Ribbon (PBR) which has been converted into a candle holder and placed next to a bottle of “domestic” Taedonggang Beer. Click image for source. Maybe the number of hipster visitors to the DPRK has increased?

Coca Cola
Forbes Magazine has a very interesting article on talks between the North Koreans and Coca-Cola! Read the full article here.  I thought this would be a good time to remind readers about the DPRK’s indigenous cola:

Image source here

The soda is “Crabonated” which is a pretty funny typo. Also worth noting are the lengths they have gone through to copy the Coca-Cola brand–as if they are trying to win back market-share from the firm. The colors, red, black, silver and white are the same. The familiar cursive English “C” at the beginning of the word is a close copy. They even tried to replicate the Coke “wave” by adding a literal wave in a similar curve along the bottom of the advert.

 

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The heads of the Central Bank and State Price Commission appointed

Wednesday, March 16th, 2011

Institute for Far Eastern Studies (IFES)
NK Brief No. 11-03-15
3/15/2011

Recently, Paek Ryong Chon was appointed as the new President of the Central Bank of the DPRK. Paek is known as the third son of late Paek Nam Sun, the former Foreign Minister of the DPRK.

According to the DPRK’s official news agency KCNA, a national meeting of commercial officials was held at the People’s Palace of Culture in Pyongyang on March 7, 2011. The list of attendees at this event included Paek Ryong Chon as the President of the Central Bank.

The senior Paek served as the Foreign Minister of the DPRK from 1998 to 2007 before he passed away in January 2007. His third son, Paek Ryong Chon, 49, made his public political appearances at the North-South Premier Talks and the Joint Committee for Inter-Korean Economic Cooperation meetings in Seoul on December 2007 as a department director of the Secretariat of the Cabinet.

Previously, he visited South Korea as a part of the North Korean delegation in 2002 at the first working-level talks of inter-Korean economic cooperation and again in June 2006 for the Inter-Korean Joint Event held in Kwangju.

The Central Bank was established in 1946 and is responsible for issuing bank notes, currency control and regulating other banks. The Central Bank also operates as a savings and insurance institution that provides services for the general population of North Korea through regional branch offices.

Paek’s new appointment is believed to be largely in consideration for the late foreign minister, Paek Nam Sun.

Meanwhile, Ryang Ui Gyong was appointed as the Chairman of the State Price Commission, which was formerly known as the State Price Bureau.

The KCNA made a referral to Ryang Ui Gyong as the Chairman of the State Price Commission in a recent report on a national meeting of commercial officials.

Not much is known about Ryang. He is speculated to have built his career in the State Price Bureau as a technocrat.

The State Price Commission is responsible for the price control of agricultural and industrial prices and wage systems, calculating the living costs for the people. The recent upgrade from a bureau to a commission is analyzed by many experts as North Korea’s move toward stronger price control policy to stabilize prices.

The Commission is also in charge of regulating import and export prices twice a year. This is evaluated as an attempt to prevent imports from being imported at a higher price and exports from being exported at a lower price than the international market average.

In the past, the State Planning Commission and the State Science and Technology Commission were the two main commissions in North Korea. However, since June 2010, the number of commissions has risen to five, a result of the reorganization of the Ministry of Education to Education Commission, the Joint Venture and Investment Guidance Bureau to the Committee of Investment and Joint Ventures, and the State Price Bureau to the State Price Commission.

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DPRK central bank raises deposit rates and eases access to money

Sunday, March 6th, 2011

UPDATE: For the second time in as many weeks, the DPRK’s central bank makes the news.  According to KCNA:

A national meeting of commercial officials took place at the People’s Palace of Culture on Monday.

The meeting reviewed the gains and experience made in the past commercial service and discussed tasks and ways for improving this work.

Present there were Premier Choe Yong Rim, Minister of Light Industry An Jong Su, Minister of Foodstuff and Daily Necessities Industry Jo Yong Chol, Chairman of the State Price Commission Ryang Ui Gyong, President of the Central Bank Paek Ryong Chon and other officials.

According to Yonhap, Paek Ryong Chon is the third son of the late foreign minister Paek nam-sun.

ORIGINAL POST: A big hat tip to Chris Green who translated an interesting article on recent changes to DPRK banking regulations.  The original article in Korean is here.

According to Chris’ translation of the article:

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.”

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.

Fascinating stuff.  Thanks for posting, Chris.

I am actually looking for information on the DPRK’s monetary system, so if you have any good papers, please send them my way.

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US sanctions two more DPRK organizations

Thursday, November 18th, 2010

UPDATE 2: Here is the actual Treasury Department Press Release (11/18/2010):

Treasury Designates Key Nodes of the Illicit Financing Network of North Korea’s Office 39

11/18/2010
WASHINGTON – The U.S. Department of the Treasury today designated Korea Daesong Bank and Korea Daesong General Trading Corporation pursuant to Executive Order (E.O.) 13551 for being owned or controlled by Office 39 of the Korean Workers’ Party.  Office 39 is a secretive branch of the government of the Democratic People’s Republic of Korea (North Korea) that provides critical support to North Korean leadership in part through engaging in illicit economic activities and managing slush funds and generating revenues for the leadership. Office 39 was named in the Annex to E.O. 13551, issued by President Obama on August 30, 2010, in response to the U.S. government’s longstanding concerns regarding North Korea’s involvement in a range of illicit activities, many of which are conducted through government agencies and associated front companies. Korea Daesong Bank is involved in facilitating North Korea’s illicit financing projects, and Korea Daesong General Trading Corporation is used to facilitate foreign transactions on behalf of Office 39.

“Korea Daesong Bank and Korea Daesong General Trading Corporation are key components of Office 39’s financial network supporting North Korea’s illicit and dangerous activities,” said Under Secretary for Terrorism and Financial Intelligence Stuart Levey.  “Treasury will continue to use its authorities to target and disrupt the financial networks of entities involved in North Korean proliferation and other illicit activities.”

E.O. 13551 targets for sanctions individuals and entities facilitating North Korean trafficking in arms and related materiel; procurement of luxury goods; and engagement in certain illicit economic activities, such as money laundering, the counterfeiting of goods and currency, bulk cash smuggling and narcotics trafficking. As a result of today’s action, any assets of the designated entities that are within U.S. jurisdiction are frozen and U.S. persons are prohibited from conducting financial or commercial transactions with these entities.

UPDATE 1: Here is the US Treasury Department’s web page on North Korea.

ORIGINAL POST: According to Reuters:

The United States sanctioned on Thursday two North Korean companies linked to a group it accuses of drug smuggling and other “illicit” activities to support the nation’s secretive leadership.

U.S. sanctions against North Korea aim in part to persuade Pyongyang to abandon its nuclear programs, which the United States views as a threat to its allies South Korea and Japan. The North tested nuclear devices in 2006 and 2009.

The Treasury Department’s moves against Korea Daesong Bank and Korea Daesong General Trading Corporation will freeze any assets belonging to them that fall within U.S. jurisdiction as well as bar U.S. companies from dealing with them.

Their main aim is not to block North Korean assets in U.S. banks — analysts say there are unlikely to be any — but to discourage other banks from dealing with North Korea, thereby cutting off its access to foreign currency and luxury imports.

Perks and luxuries such as jewelry, fancy cars and yachts derived from North Korea’s shadowy network of overseas interests are believed to be one of the main tools Pyongyang uses to ensure loyalty among top military and party leaders to North Korean leader Kim Jong-il.

The Treasury described the two entities as “key nodes of the illicit financing network” of Office 39 of the Korean Workers’ Party, which it accuses of producing and smuggling narcotics to earn foreign exchange for the government.

“Korea Daesong Bank and Korea Daesong General Trading Corporation are key components of Office 39’s financial network supporting North Korea’s illicit and dangerous activities,” Treasury Under Secretary Stuart Levey said in a statement.

Heroin Production?
The Treasury designated the two under a recent executive order that targets entities that support North Korea’s arms trafficking, facilitate its luxury goods purchases and engage in illicit economic activities such as money laundering, drug and bulk cash smuggling and counterfeiting goods and currency.

President Barack Obama signed the executive order on August 30 allowing the Treasury to block the U.S. assets of North Korean entities that trade in arms or luxury goods, counterfeit currency or engage in money laundering, drug smuggling or other “illicit” activity to support the government or its leaders.

When that executive order was announced, the Treasury accused Office 39 of producing opium and heroin and of smuggling narcotics such as methamphetamine.

U.S.-North Korean relations have deteriorated since Obama took office, with his aides deeply unhappy about Pyongyang’s decision to conduct nuclear and missile tests last year as well as the March 26 sinking of the South Korean corvette Cheonan.

Forty-six South Korean sailors were killed in the incident, which the United States, South Korea and other nations blame squarely on North Korea. Pyongyang denies responsibility.

In the August 30 executive order, Obama cited the Cheonan’s sinking as well as 2009 nuclear and missile tests by North Korea as evidence it poses “an unusual and extraordinary threat” to U.S. national security, foreign policy and economy.

The Obama administration has been skeptical about returning to so-called six-party negotiations with the two Koreas, China, Japan and Russia under which Pyongyang committed in 2005 to abandon its nuclear programs.

U.S. officials say they do not want to talk for the sake of talking and North Korea must show some commitment to abandoning its nuclear programs.
Read the full story here:
U.S. sanctions two North Korean entities
Reuters
Arshad Mohammed
11/18/2010

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DPRK issues rule on bank deposits

Thursday, July 29th, 2010

According to the Daily NK:

North Korean authorities released a public announcement that they will exchange deposits, consigned to the Chosun (North Korea) Central Bank during the currency redenomination in November last year, into new bills at the rate of 100:1 within the limit of 500,000 won.

Last November the North’s authorities announced that they will exchange the existing denomination, to a limit of 150,000 won per household, to the newly issued bills at the rate of 100:1. They urged people to deposit their remaining cash into the bank.

However, many citizens have refused to follow the instructions after previous experiences with forfeited deposits during the country’s fourth redenomination in 1992.

This measure is designed to work towards curing the hardships of residents caused by the decline in value of individual property since the last redenomination. There are hopes that it will stimulate market activity by increasing the amount of money in circulation, particularly since a downturn in purchasing power amongst the people led to an economic depression.

However, even after the Central Bank’s announcement the people remain apathetic. A source said that, “Prices have risen to similar levels as before the redenomination. Rice now costs over 1,000 won per kilogram; when you get back your deposit of 5,000 won you can only buy five kilograms of rice. It’s meaningless.”

If the state-designated price of rice, around 24 won per kilogram in procurement stores, had been maintained then this measure would be significant. Now the prices have multiplied by 50 and the people say that the measure is nothing but a play on words.

In addition, February saw the authorities hand down a decree to raise all state-designated prices by 100 times to levels known before the redenomination. The decree was not applied to people’s deposits in the bank, a fact that has received criticism from the public. A source commented that, “The authorities actions are nonsense. They raised prices by 100 times but people’s deposits were the same value as last year. It is ridiculous.”

Read the full sotry here:
Bank Deposits Can Be Withdrawn at 100:1 Rate
Daily NK
Park In Ho
7/29/2010

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Foreign exchange and smuggling again prevalnet in North Korea

Friday, March 26th, 2010

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-03-22-1
3/22/2010

Foreign currency swaps and illegal trade are again prevalent in North Korea, despite recent currency reforms and bans on money exchanges.

Following last November’s currency reform, there has been a significant crackdown on the use of foreign currency and cross-border trade by individuals. However, reports indicate that North Korean traders continue to conduct business with outside entities, despite new regulations requiring them to remit profits through the Korean ‘Kwangson’ Bank. There has been a crack-down on unauthorized transactions, but it appears to have been ineffective.

The Korean Central Bank and Chinese People’s Bank established the Kwangson Bank in 2004 in Dandung as part of the North’s efforts to earn foreign capital. Even today, North Korean authorities rely on the Kwangson Bank to handle trade accounts, but most North Korean traders despise using the bank, and conduct most of their transactions privately, avoiding authorities. This is because the bank has a reputation for seizing the profits of private traders. The official decision to funnel foreign funds through the Kwangson Bank was part of the effort to crack down on smuggling, and was in conjunction with other currency reform efforts.

Economic reform attempts included crackdowns on illegal activity for a short time, but black market currency trade and smuggling has again become commonplace. Reform efforts were aimed at reducing unregulated and illegal trade by requiring transactions to be carried out through a government bank, but the costs associated with such a transaction further encouraged black market activity.

It also appears that currency exchange, banned as part of last year’s currency reform, is now again being allowed in order to ease rising prices and other detrimental side effects of the measures.

In North Korea, not only traders, but also average citizens are earning foreign capital through smuggling and other means. The latest reversal of policy to again allow currency exchange is seen as an attempt by authorities to sooth rising discontent within the masses.

In November of last year, North Korea implemented currency reforms and issued new notes, devaluing the currency by 100:1 and banning private holdings of foreign currency. This led North Koreans to lose faith in the value of their currency and sparked a drive on foreign monies. Now, the government appears to be implementing measures to underscore the value of the Won and to stave off inflation. Foreign visitors are allowed to again spend foreign currency and it appears that other restrictions are slowly being lifted.

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Orascom 3G wrap up

Friday, December 19th, 2008

UPDATE: Here is an older paper by Stacey Banks which I have not read: North Korean Telecommunication: On Hold.

ORIGINAL POST: On Monday the Orascom 3G mobile network launched in North Korea.  Just about everyone covered this story…so here are the highlights:

Telecommunications in North Korea: Has Orascom Made the Connection?
Working Paper: Marcus Noland

The topicality of the second paper, on the Egyptian firm Orascom’s role in North Korea’s telecommunications modernization, received a boost this week with the announcement in Pyongyang that Orascom was finally rolling out its cell phone service and creating a joint venture bank with a North Korean partner.  The planned Orascom investments are large: if actualized, they would be the largest non-Chinese or non-South Korean investments in North Korea, and would exceed total private investment in the Kaesong Industrial Complex to date

Financial Times

Orascom is confident North Korea is opening up its economy and says it has been assured by the ­government that everyone will be allowed to buy a mobile. However, experts think that such a volte-face is highly unlikely and reckon only senior military and government officials will be allowed access, and then only to a closed network.

When asked how many people would ultimately use the service, Orascom’s chairman Naguib Sawiris said: “We have a modest target of 5 to 10 per cent of the population.” The population is about 23m. Mr Sawiris expects 50,000 subscriptions in the first three-to-six months.

Jim Hoare, Britain’s former chargé d’affaires to Pyongyang, says the new network is bound to have severe restrictions.

“It’s unlikely that a country that doesn’t allow you to have a radio unless it’s set to the state frequency will suddenly allow everyone to have mobile phones. It’s more credible that there will be a limited network for officials in Pyongyang and Nampo.”

Dong Yong-sung, chief of the economic security team at the Samsung Economic Research Institute in Seoul, believes another obstacle to ordinary North Koreans owning phones will be the cost. “As far as I know, mobile phone registration costs about $1,000,” he said, a sum equivalent to the average annual income.

(NKeconWatch: Others put the price at $700…and there are many problems with asserting that the DPRK’s per capita income is $1,000 per year.)

Bloomberg

The inauguration of Koryolink took place today in North Korea, Orascom Telecom said in an e-mailed statement. Orascom Telecom Chief Executive Officer and Chairman Sawiris attended the event, a company official said, requesting anonymity. The Cairo- based company got a 25-year license and exclusive access for four years in January. It plans to spend as much as $400 million on a high-speed network and the license for the first three years.

The North Korean venture is “in line with our strategy to penetrate countries with high population and low penetration by providing the first mobile telephony services,” Sawiris said in a statement earlier this year.

CHEO Technology JV Company, the North Korean unit that will operate under the Koryolink name, is 75 percent owned by Orascom Telecom and 25 percent by the state-owned Korea Post and Telecommunications Corporation.

The unit will see average revenue per user of $12 to $15 this year as Orascom Telecom targets three of the country’s biggest cities, according to company forecasts.

Koryolink has rolled out its so-called third-generation grid to initially cover Pyongyang, with a population of 2 million.

Orascom is counting on four potential markets in the Stalinist nation, according to a study by Marcus Noland of the Peterson Institute for International Economics.

The military and government officials are the top targets, followed by foreigners working for UN organizations and diplomats. The others are customers from South Korea, which has several economic projects with its neighbor, and local demand from rich North Koreans.

To protect its investment, Orascom “hedged its bet, committing only half of its investment at the outset and making additional investment conditional on its assessment of conditions going forward,” Noland said.

If the deal is threatened, Orascom may withdraw specialized equipment or technicians, reducing the value of the network to Pyongyang, Noland said in his study.

“Orascom may have spread the wealth informally, creating beneficiaries within the decision-making apparatus who would stand to lose if the agreement failed,” according to the study.

Bloomberg

Orascom Telecom, the Middle East’s biggest wireless company, opened Ora Bank in Pyongyang in the presence of Chairman and Chief Executive Officer Naguib Sawiris, a company official said on condition of anonymity. Ezzeldine Heikal, who is also head of Koryolink, Orascom’s North Korean mobile-phone network, was appointed president of the bank, the official said without providing further details.

“This is a big deal, especially as far as North Korea is concerned, because the current banking system is virtually non- existent,” Marcus Noland of the Peterson Institute for International Economics said in a telephone interview from Washington, D.C. “It’s a ground that others have feared to tread and is perhaps an endorsement for North Korea that says ‘we’re open for business.’”

Ora Bank is a joint venture between Orascom Telecom and North Korea’s state-owned Foreign Trade Bank, North Korea’s official news agency reported today. The director of North Korea’s central bank Kim Chon Gyun and Egypt’s ambassador to Pyongyang Ismail Abdelrahman Ghoneim Hussein, were also present at the opening ceremony, the news agency said.

Radio Free Asia

Chinese traders who regularly travel back and forth to North Korea said local residents showed little enthusiasm for the new service, which cost more than U.S. $900 to set up before the Ryongchun explosion.

North Korean defector Kim Kwang-jin, a senior researcher at the Institute for National Security Strategy in Seoul, said the fact that the government had once pulled the plug on North Korean cell phones meant that it could easily do so again.

“In the beginning, people will be hesitant, because a few years ago many of them made a big investment in cell phones. But service was suspended abruptly, so they are still very concerned that might happen again,” Kim said.

“People are also worried that the ability to pay such a high amount of money for a cell phone may raise a red flag and bring them under scrutiny by the North Korean authorities.”

Most foreigners are banned from using cell phones while in North Korea, although a network for government officials is believed to exist in the capital, Pyongyang.

(NKeconWatch: I personally saw elite North Koreans use mobile phones and even some western journalists in 2005.)

The Guardan

North Korea first experimented with mobile phones in 2002, but recalled the handsets 18 months later after a mysterious train explosion that killed an estimated 160 people. Some experts argue that officials feared the incident was an attempt to assassinate the regime’s “dear leader”, Kim Jong-il, and that mobile phones were involved.

BBC

Some reports suggest that handsets for the new network will cost around $700 each, putting them far beyond the reach of the vast majority of people in the impoverished country.

Choson Ilbo

Although the technology would enable users to send and receive text messages and video content, North Korean customers will only be allowed to speak over their phones.

BMI Political Risk Analysis, Dec 16, 2008 (h/t Oliver)

BMI View: North Korea has officially begun third-generation (3G) mobile phone services, thanks to Egypt’s Orascom Telecom (OT). However, the growth of the network could be limited by the regime’s fear that mobile phones will increase the scope for anti-regime activities.

North Korea has officially commenced third-generation (3G) mobile phone services, thanks to an investment by Egypt’s Orascom Telecom (OT). The firm’s initial target is 100,000 subscribers in three major cities, including Pyongyang, and it eventually hopes to develop a nation-wide network connecting North Korea’s 23mn citizens. OT has promised to invest US$400mn in network infrastructure over the next four years. It has signed a 25-year contract with the North Korean government, and owns 75% of their joint-venture (known as Korealink). OT’s exclusivity rights will last for four years. Orascom’s foray is something of a coup, given that North Korea’s communications network is so rudimentary (for further background see December 8 2008, Industry Trend Analysis – North Korea Prepares For Mobile Network Launch).

Why Pyongyang Fears Mobile Phones
North Korea launched a mobile phone service operated by a Thai subsidiary firm in 2002, but reversed course in 2004, apparently because of a devastating bomb blast on a train in Ryongchon in April of that year. Given that North Korean leader Kim Jong Il’s personal train had passed through the area only a few hours earlier, there was speculation that the explosion had been an assassination attempt, possibly triggered by mobile phone. Since then, only those living in areas close to the border with China have had access to mobile phones, thanks to the proximity of the Chinese network.

Aside from the notion of mobile phones as bomb triggers, they can also make it easier for citizens to communicate with one another. This would increase citizens’ ability to organise anti-government activities – such as protests or sabotage. For example, the popular uprising that led to the overthrow of Philippine president Joseph Estrada in 2001 was dubbed the ‘text message revolution’, because that is how the marches were announced and coordinated. Admittedly, the Philippines is a far more open society than North Korea, but the subversive aspect has not been lost on the regime.

Mobile phones would also make it easier for North Koreans to communicate with the outside world, and thus allow the real-time transmission of information or intelligence to foreign media or spy agencies, and vice versa. They would also allow the North Korean elite to communicate more efficiently, allowing dissident elements to plot against the regime.

Thus, even something as basic as mobile phones are seen as potentially regime threatening.

Mobile Service Difficult To Spread
Consequently, Orascom will surely find it difficult to spread its mobile service across the country. For a start, registration will be tightly watched. Secondly, the cost of the handsets, at several hundred dollars, will mean that only the political and moneyed elites will be able to afford mobiles. Of course, elements of the elite can ‘misuse’ their phones to arrange subversive actions if they deem it worthy, but it seems that the regime are counting on loyalty. Indeed, depending on the sophistication of their equipment, the regime will probably be able to snoop in on the elite’s conversations and movements, giving them an additional layer of security.

Read the full articles below:
Orascom eyes North Korean network
Financial Times
Christian Oliver
12/14/2008

Orascom Telecom’s Sawiris Signs North Korean Deal
Bloomberg
Tarek Al-Issawi
12/15/2008

Orascom Telecom of Egypt Opens Bank in North Korea
Bloomberg
Tarek Al-Issawi
12/16/2008

North Korea Brings Back Cell Phones
Radio Free Asia
Jung Young
12/16/2008

Secretive North Korea launches restricted mobile phone service
The Guardian
Tania Branigan
12/16/2008

N Korea launches 3G phone network
BBC
Steve Jackson
12/15/2008

N.Korea Restarts Cell Phone Service
Choson Ilbo
12/17/2008

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