[KS] question on North Korean banking
ruediger.frank at univie.ac.at
Thu Sep 20 04:10:37 EDT 2007
Dear Mr. Kane,
as far as I know, there is no official call rate, no official interest rate, no official inflation rate, and actually, no macroeconomic data at all except some strange percentage changes of key budget positions as announced each year in March or April during the choego inmin hoeui session. Most data one can find on the web are either directly or copied from the ROK's Bank of Korea, and I suggest you ask them folks in Seoul how they generate these before basing an argument on the numbers. I have heard some funny stories about that, like creating a very rough absolute estimate for one base year and the keeping adjusting it by estimated change rates. When there is a huge demand (for statistics on NK), there will inevitably be a supply...
There are many methodological issues that make a calculation of NK macroeconomic data enormously difficult. One point is the KPW's exchange rate, which has been artificially inflated by about 7500% in 2002 - and no reflection in the BoK's numbers. Very strange. When the KRW dropped by just 50% or so during the Asian Financial Crisis, the SK GDP in USD dropped accordingly - but nothing in the case of NK. Calculating reliable PPPs is, imho, impossible too, complicated by the dual price structure and the intransparent system of taxation, subsidization and so on.
What I "know" about the NK banking system is that it is fully in the state's hands, as the rest of the economy. The only "real" banking taking place is in the case of foreign trade. Domestically, there is no need for an interest rate, because there is no competition over capital. Money is being allocated via the central planning system, and hence the banks are distributors of money, pretty much like the public distribution system hands out rice. When they issued the inmin saengwhal kongchae in 2003, these bonds came without an interest rate, but rather with a lottery. This is not to say there is no interest rate in NK, but this number, if it exists, is just a figure that some guy behind a desk has invented, and by no way reflecting the scarcity of money. Maybe this has changed in the era of "costs, prices and profits", but then others will hopefully comment.
If there is any way to measure demand for money in NK, it should be done via the forex rates or by asking racketeers on the non-state financial market (which used to be called curb market for South Korea). Since many people engage in small businesses now, there must be a money market with crazy interest rates. But, well, good luck with finding data on that...
I did some calculations on the inflation rate, if that helps you out. Based on a number of prices for basic goods, labor and USD/EUR, I arrived at some 200% on average annually for 2002-2004. Assuming that a real interest rate must be positive, it would have to be above this level. This seems to have slowed down, though. My NK partners have stopped asking about inflation, which means that they either understand it now or got it fixed. The only way how an economy can survive such a shock is by not depending on all these rates. Bad luck for individuals; the state just seems to have printed more money. The purple 5000 KPW bills have appeared around that time, for good reasons. The brown 100 KPW notes are older, so there must have been problems with inflation before. I would LOVE to see reliable numbers on that, so please keep me updated on your or your patron's progress.
Univ. Prof. Mag. Dr. Ruediger Frank
Professor of East Asian Economy and Society
University of Vienna
East Asian Institute
- Austria -
phone: +43-1-4277 43822
fax: +43-1-4277 9438
mailto:ruediger.frank at univie.ac.at
on Donnerstag, 20. September 2007 at 02:38 you wrote:
> Hi everyone,
> I'm hoping someone out there in the KS community might be able to
> crack this question or help me crack it. A patron here at UH library
> who doesn't know Korean is working on a multiple regression model
> where the 2004 call rate (aka overnight interest rate, aka the
> federal funds rate in the US) is one of the independent variables,
> and per capita GDP is the dependent variable (that's about where he
> lost me). He is finding these numbers for several countries, one
> being North Korea. Estimations of North Korean GDP are readily
> available but we are...I am..having trouble locating the call rate
> for North Korea. I wasn't at all sure such a thing existed for North
> Korea and either is he. The South Korean term for call rate is 콜이자
> or 콜금리 though it is doubtful the North Koreans would call it that if
> the equivalent exists. Can anyone shed light on:
> 1. Whether a call rate is in existence for North Korea
> 2. What they call it
> 3. Where a call rate % for 2004 or thereabouts can or might be found
> I have tried the Google search of course but also 북한경제연감 for 2004 and Bank of Korea publications.
> Thanks in advance.
> Daniel Kane
> Korea Collection Librarian
> University of Hawaii at Manoa Library
> 2550 McCarthy Mall, Rm. 414
> Honolulu, HI 96822
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