Understanding Kim Jong Un’s Economic Policymaking: Pyongyang’s Views on Banking

Central Bank of DPRK in downtown Pyongyang.

As the third project in our series on understanding Kim Jong Un’s economic policymaking, we examined how North Korean academic journals treat the concept of banking.[1] We did so, in part, because of the surprisingly large number of articles touching on the banking issue in recent years. That intense focus suggested that new policies on banks—signaled by Kim Jong Un’s letter to a banking conference in December 2015—had presented the regime with a complicated challenge, engendering considerable research and discussion.

Indeed, that turned out to be the case. The deeper we got into over 40 journal articles, not only in Kyo’ngje Yo’ngu and the Journal of Kim Il Sung University (Hakpo) but also Sahoe Kwahagwo’n Hakpo (the Journal of the Academy of Social Sciences), the more threads there were to pull, the more angles to understand, and the more links to be followed. It also seemed worth noting that, although the banking issue was a focus in the journals, it was—and still is—almost completely absent from the two major central media sources targeting the general domestic public—Rodong Sinmun and Minju Joson.[2]

In many ways, it appears that the issue of banks was more complex than the defense versus civilian spending conundrum we discussed in the second installment of this series. As sensitive as the regime considered the defense spending issue, the banking problem was perhaps even more so. The enlargement and reform of the banking sector, which is what the regime has been attempting under Kim Jong Un, seems to have forced Pyongyang to deal with a number of new, thorny questions about how, practically and realistically, to push the economy to grow. In the process, explicitly or not, the regime had to justify adopting measures that, only a few years ago, were roundly condemned as capitalism in its worst forms. Charging interest for loans became one approved way banks could earn funds for operating capital; credit cards became portrayed as a way to increase money circulation and to ease the burden on consumers of traveling to the bank.[3]

There is an assumption sometimes expressed by outside observers that the North’s efforts in the banking sector have been primarily aimed at increasing control over funds accrued outside of central control. To the contrary, the bulk of the articles in the journals we studied focused on the opposite: how to increase “creativity” in banks, lessen rigid control from the center, and make space for bank officials—and the sector as a whole—to respond to conditions and developments at the local and enterprise levels without undue restrictions.

Tracing the Banking Narrative

As with our study of defense versus civilian spending, we started this research by examining articles back to the early 2000s to ensure that what we have seen under Kim Jong Un was not previously discussed during Kim Jong Il’s time in power. What we observed was that under both leaders, there was a long stretch of educational articles in Kyo’ngje Yo’ngu about banks, banking and the international financial system, very much focused on preparing North Koreans for business relationships with capitalist actors outside the country and entry of capitalist companies or investors into the North. Many of these articles were nonjudgmental and illustrative, in a sort of “Banking for Dummies” approach. In some cases, the authors felt compelled to justify their treatment of what would otherwise be controversial topics by explaining:

Correctly understanding the economies of other countries and the international market is the first step in external economic activity and as such is important work for its success. This is because when [we] know the economies of other countries and the international market well can we proactively carry out external economic transactions and guarantee actual profits [silli; 실리].[4]

North Korean academic journals had dealt with foreign economic practices since at least 1990, but it was not until 2000 that they started to pay attention to foreign banking and financial practices and institutions in a non-ideological, educational manner. That was no accident. It was in 2000 that there was significant progress in Democratic People’s Republic of Korea-Republic of Korea (DPRK-ROK) and DPRK-US relations, all part of the lead-up to Kim Jong Il’s 2002 economic reforms. The study of foreign banking practices continued into the first few years of Kim Jong Un’s rule, signaling that research was still underway about more encompassing internal financial and banking reform.

One early sign that a policy change was in the works but not yet fully approved came with a spring 2014 article in Kyo’ngje Yo’ngu. Apparently still not on firm ground to advance new thinking, the article employed a traditional tactic journal authors use to protect themselves from criticism, beginning the article as a paean to orthodox thought before switching in an effort to push the envelope with new ideas. In this case, the article began by stressing the importance of money circulation for defense spending before pivoting to make what was really the main point: “If a money circulation strategy is implemented, it would generate more monetary income in the hands of the working people, and their purchasing power would rise systematically.”[5]

After Kim’s 2015 letter, article after article in the journals seemed to reflect a clear understanding that fresh, to some extent independent, thinking at the bank level was critical to the success of Kim’s efforts to transform management policies through the socialist enterprise responsibility system (SERMS), Kim’s key reform measure of giving individual enterprises greater latitude in planning, production, and management of resources and profits. For example, the first journal article exclusively dedicated to expounding on a new concept known as the “accounting system of financial institutions”—essentially the equivalent of SERMS for the banking sector—noted that one of its purposes was to increase the sense of responsibility and creativity of commercial banks.[6] An article that appeared the following year went beyond simply espousing the goal of banks’ creativity and advocated measures to make sure that was not impeded: “Legal provisions and regulations related to commercial bank activities as a whole should be reviewed on a state level, and too many shackles tying down commercial banks should be rectified.”[7]

After Kim Jong Un’s December 2015 guidance on banking reform—instructions which made no reference to a link between such reform and military spending—journal authors were freed from the burden of having to protect their flanks by rationalizing the new policies on grounds other than improving the economy.

Kim’s December Letter

The issues of concern enumerated in Kim’s December 2015 letter—issues subsequently tackled in the journals—were: the role of banks in support of SERMS; currency circulation and stability; and the use of “idle funds.” In fact, the major purpose of the banking reforms appears to have been to support SERMS from all angles, making banks profitable so they could provide more loans and keep money in circulation, utilizing “idle funds” and thus ensuring funds for enterprises on their own—i.e., with least state money—to compensate workers, purchase new equipment and additional materials as output grew.

There was a curious gap of nearly a year in which the journals did not pick up on the ideas set forth in Kim’s letter, a rather long hiatus for North Korean journals to start expounding on the leader’s guidelines. When they did, it was Hakpo, whose writers are generally assumed to be Kim Il Sung University faculty, that took the lead in expanding on and explaining many of the key themes Kim set forth in his letter, suggesting that the university may have played an instrumental role in researching and conceptualizing these ideas.

In that vein, a Hakpo article in late 2016 led the way for explaining or building on instructions in Kim’s letter that left room for interpretation—and, not surprisingly, there were several points in the instructions that needed fleshing out.[8] Central to the banking issue was the role of commercial banks in a socialist setting. Exclusively about commercial banks, this article was pivotal in that it went beyond introducing the outside world’s banking policies and sought to adapt commercial banks to North Korea’s needs.

Commercial Banks

At the center of the banking sector overhaul was the issue of expanding the role of commercial banks—defining how these banks differed from the central bank, and crucially, how much “creativity” commercial banks were to exercise apart from central control and instructions. Prior to Kim Jong Un’s financial and banking reforms, North Korea operated a “monobanking system” common in socialist planned economies: The central bank performed all key banking functions, namely note issue, currency control, deposits and loans. Pyongyang enacted a Commercial Banking Law in 2006 under Kim Jong Il to create commercial banks, likely to support his new economic policies, but the plan did not make headway and faded—although not completely—along with his initiatives.

Commercial banks had long been regarded as the epitome of capitalism, as reflected in the North Korean encyclopedia’s characterization in 2005:

In order to obtain as much interest and commission as possible, commercial banks even pour funds into loans with unproductive, parasitic, predatory, and aggressive purposes, suck up a portion of the profits the capitalists have acquired, and direct them to dividends and reserves.[9]

Switching to a full embrace of commercial banks—indeed, converting existing branches of the central bank into commercial banks—was not an easy sell. It is no wonder, then, that the 2016 Hakpo article on operationalizing commercial banks in North Korea went out of its way to try to distinguish between capitalist and socialist commercial banks:

In a capitalist society, commercial banks are exploitative and profit-making businesses that will resort to any means and methods to achieve their profit-pursuing objectives. In a socialist society, however, commercial banks carry out their mission and duties as state institutions that financially guarantee the people’s economic development and control business activities for their improvement, including currency control work and management of state property in their regions.[10]

North Korean journals intensified their attention to commercial banks starting in 2018—more than two years after Kim’s letter clearly blessed the role of these banks and as Kim was shifting to direct diplomatic engagement with Seoul and Washington. The articles focused on explaining the function of commercial banks and described ways to improve their operation.

Why this spate of articles? It is possible that difficulties developed internally over accepting the broadened role of such banks, especially the idea that in order to fulfill their function as a spark plug for economic growth, they needed to be freer to operate, especially in what was beginning to look like a favorable external environment that could present new opportunities for the economy. Possibly in response to criticism or political pushback from within, an article in Hakpo introduced the term “socialist commercial banks” as if to distinguish the new, good version of banks from the capitalist variety.[11] At the same time, much as Kim Jong Un had done in his letter, articles frequently took care to point out that the commercial bank initiative was completely in line with previous policies by Kim Il Sung and Kim Jong Il, though an important, transformative step beyond.[12]

A key concept associated with commercial banks was the “accounting system of financial institutions.” As noted above, this was the companion in the banking sector to SERMS in the enterprise sector. Kim Jong Un briefly introduced the new accounting system for banking in his 2015 letter:

The accounting system of financial institutions is a mode of business activity where commercial banks compensate for their expenses with revenues from financial business and give benefits to the state.[13]

That was a bare-bones reference to something so important, and so journals eventually—though not until 2018—expanded on it, explaining the differences between this new concept and the old “budget system,” which had been the former mode of operation for North Korean banks:

In the operation of banks, the budget system method is an operational method of offering all the work income generated in the process of operating banks toward the stage budget and [pay for] all the expenses incurred during the work process by receiving [money] from the state budget. Whether banks are operated through the budget system method or the accounting system method is one of the fundamental issues raised in the operation of banks. That is because this issue is an issue of boundaries in the economy of bank operation and thus is an issue of whether banks themselves take responsibility for compensating for bank operating costs, or whether the state compensates for them.[14]

The delay in more fully discussing the new accounting system for banks could well reflect sensitivities about the concept—even though Kim Jong Un himself had introduced it.[15] By contrast, it is worth noting that North Korean academic journals started mentioning SERMS in October 2014, only five months after Kim introduced the terminology. As recently as 2020, a journal article on the bank accounting system took care to note it was keeping with the late Kim leaders’ “behest.”[16] That the writer felt the need to reassert this point long after the policy had been promulgated suggested there were, and probably are, ongoing problems.

Idle Funds

Kim Jong Un’s 2015 letter contained only the barest instructions on the issue of “idle funds.” That term would seem to be self-explanatory but turned out to be more complex than first appeared. If commercial banks were, according to the new accounting system, supposed to obtain funds apart from the state budget to sink back into the economy, where were they going to find them? Defining, locating, utilizing and increasing “idle funds” all had to be tackled. The first journal article that picked up Kim’s letter, in Hakpo’s final volume for 2016, only scratched the surface on idle funds, noting:

“In order to develop the deposit business to meet actual requirements, the business system should be perfected so that the idle cash tied down to the hands of not only individual residents but also businesses can be mobilized to the maximum.” For that, banks “should revitalize the residents’ savings work.”[17]

The article offered no speed bumps to commercial banks getting control of idle cash: “In particular, if banks cannot use credit levers properly, they will not be able to take control of the cash in the hands of residents or the idle cash in the hands of businesses.”

Other than passing mentions, the issue then lay fallow in the journals for more than a year when it was again tackled, this time in more detail by a series of articles in 2018. A Hakpo article in 2018 emphasized the importance of cash “in the hands of residents” and thus the need for “ensuring smooth money circulation and improving the people’s living standards by mobilizing to the maximum residents’ idle money to banks.”[18] The same article added for the first time in the journals’ discussions of new banking policy the warning: “In addition, commercial banks should regard credit with residents as the law and keep it without fail, and accept various forms and methods of savings suitable for the income levels, living conditions, and needs of residents.” While most of that working was taken from Kim Jong Un’s December 2015 letter, the final phrase on “income levels, living conditions, and needs” was added, apparently to emphasize even more strongly the importance of banks encouraging savings programs.

The concept of “idle funds” apparently continued to be a source of at least confusion, if not controversy. As with the introduction of the new terminology on banks (“socialist commercial banks”), an article published at the end of 2018 that dealt with idle funds tried something similar, reintroducing the term “temporarily” idle funds:

The fund mobilization and utilization function is one of the basic functions of commercial banks, as it concentrates into banks the temporarily idle funds that are not being used for production or consumption by residents, institutions, and businesses and supplies them to businesses that are short of funds.[19]

Fiddling with terminology, apparently, did not settle the issue. Consequently, a much more detailed treatment of idle funds appeared, this time in Kyongje Yongu by Nam So’k-ch’un, though it strained to define which funds could be considered “idle” that commercial banks could utilize. The problem was that since virtually all money in the system had to be derived from some form of “socialist ownership,” what funds could a commercial bank utilize on its own, in a sense outside of state purview?

To address this, the article went through a tortured explanation of how the money in socialist commercial banks was different from that in capitalist banks, how that of the socialist banks “largely” fell under socialist ownership, and thus, implicitly, what was important was not the theoretical sources of the funds but how they were utilized.

The various natures of funds concentrated in commercial banks in a socialist society are funds raised on the basis of social production. As such, they are guaranteed materially and accordingly are utilized in a planned manner. Even the idle monetary funds absorbed by commercial banks are funds raised on the basis of social production and concentrated in commercial banks due to their function of mobilizing funds. By utilizing the monetary funds collected into their possession in a way that is suited to their character, commercial banks actively contribute to accelerating the social reproduction process.[20]

Nam’s first article left too many questions, apparently, and more needed to be done in defining what constituted idle funds that banks would use and what they could not.

Nam followed up with a second article a few months later, using this passage from Kim’s 2015 letter:

[Commercial banks] need to meet the demand for funds in their given regions with their own sources of funds, strike a balance between revenue and expenditure, and ensure that money circulates smoothly revolving around banks by utilizing deposits and loans, payment methods, and interest rate levers in a diverse manner.[21]

While this citation did not specifically mention idle funds, Nam used the quote as a jumping-off point to deal with that issue, taking a reader through the maze of funds, something beyond “state versus nonstate” or “temporarily idle versus productive.” While some funds were in commercial banks, they were not to be considered a source of funds the banks could utilize as loans or forms of credit.

The sources of commercial banks’ funds are either idle monetary funds that commercial banks mobilize from residents, organs, and enterprises through credit methods for financing, or their own funds raised in the process of their financial business activities. In this vein, not all funds in commercial banks are commercial banks’ sources of funds: those funds mobilized through credit methods or commercial banks’ own funds raised during financing processes serve as sources of funds for commercial banks.[22]

In sum, Nam said that commercial banks’ “sources of funds consist of their own funds, revenue from savings mobilized from residents, revenue from deposits mobilized from organs and enterprises, and financial organs’ loans,” and that, “among the important characteristics of commercial banks’ sources of funds is, above all, that they are idle monetary funds of a temporary character.”

That might seem enough, but Nam was compelled to add a wrinkle:

Idle monetary funds of a temporary character refer not to funds that are functional in reproduction processes in reality, but funds that are temporarily idle outside reproduction.

Enough already! But Nam had to go deeper, balancing and clarifying what seemed to be competing claims to “idle funds”:

Temporarily idle funds in the hands of residents, organs, and enterprises are idle monetary funds but are not sources of funds for commercial banks. That is because such funds are not idle monetary funds mobilized for commercial banks but are idle monetary funds in the hands of residents, organs, and enterprises.

In other words, not all temporarily idle funds are the same, and not all are equally available for bank use.

Temporarily idle monetary funds existing among residents, organs, and enterprises are not sources of funds for commercial banks, but these funds pose the possibility of being mobilized and used as sources of funds for commercial banks in the future, because they are not being utilized for productive or consumptive objectives.

Even Nam didn’t have the courage (or permission) to go any further in explaining how “in the future” it would be possible for commercial banks to figure out how to use these funds. It is possible that issue had not yet been clarified in regulations or legislation. Even so, Nam was not through but moved on to take up what was an extremely sensitive issue of how much control banks had over some of their funds, and which ones, in Nam’s words, needed to be seen as “of a returned character.” Not stated was the fact that this was a key issue in any effort to restore confidence among the public in banks. Idle funds not being used for production or consumption, Nam said, “are usually of a returned character” and thus “must” be returned to the owners of the funds “once a certain period has passed.”

This was obviously a point he felt he needed to drive home several times:

Commercial banks’ sources of funds must be returned without fail once a certain period has passed, though the period of their use may be different depending on the characteristics of their composition…Not only residents’ funds but also organs’ and enterprises’ funds included in commercial banks’ sources of funds must be returned to the owners as per their demand when the time is up…Idle monetary funds mobilized from residents, organs, and enterprises are absolutely not spare funds but are temporarily unemployed idle monetary funds. Every monetary fund movement in a socialist society dovetails with goods or commodities. Due to factors such as the characteristics of monetary fund uses, the irregularity of materials and commodities supply, and others, some funds of residents, organs, and enterprises are not used for their consumptive or productive expenses—they remain in the hands of residents, organs, and enterprises. Hence, such funds must be returned at any time to residents, organs, and enterprises when they ask for them.


A close reading of the journal articles that followed Kim Jong Un’s December 2015 letter on banking shed light on the pattern that Kim has established for rolling out his new economic policies. There is no instantaneous jumping through hoops. After some discussion of fundamental direction (discussion that we almost never see), Kim issues overarching policy guidance. It is then up to others to fill in the blanks, work out details, clarify what is ambiguous, and resolve disputes about how best to operationalize the concepts. In the case of the banking sector, this was a long process, at least four years from the time Kim issued his guidance, and undoubtedly some time—perhaps a year or even more—spent in formulating the new concepts, building on ideas already under discussion from the Kim Jong Il era.

Given the complexity of banking issues that North Korea apparently is still trying to work out, it seems unlikely that central media like the party and government dailies will publicly discuss commercial banks or their operation until the regime has made substantial progress in that realm. Even details of the country’s central bank, whose history goes back to 1946, remain scarce in central media, reflecting the highly sensitive nature of the North’s banking policy in general.

What’s Next?

The next paper in this series will examine North Korea’s “economic management methods of our style,” Kim Jong Un’s economic reform package that is broadly composed of agricultural reform (“field responsibility system”), enterprise reform (SERMS) and financial reform. Specifically, it will review how these concepts were rolled out in North Korean academic journals, what appeared to be the point of contention, and how the key concepts may have evolved over the years.

Note: translated journal articles cited in this report will be published in the coming weeks.

[DOWNLOAD PDF] Kim Jong Un’s December 2015 letter addressed to banking conference

  1. [1]

    This paper is the third installment of the “Understanding Kim Jong Un’s Economic Policymaking” series made possible through generous support from the Korea Foundation and the Henry Luce Foundation. This paper uses a modified version of the McCune-Reischauer romanization system for North Korean text, with some proper nouns following internationally recognized spellings or North Korean transliterations instead. For an overview of the project and the project’s scope and methodology, see https://www.38north.org/2021/05/understanding-kim-jong-uns-economic-policymaking-project-overview/. On the evolution of North Korea’s defense spending policy, see https://www.38north.org/2021/09/understanding-kim-jong-uns-economic-policymaking-defense-versus-civilian-spending/.

  2. [2]

    For that contrast in coverage, we still don’t have an explanation. It might reflect the sensitivity of the banking issue; it might also be explained by the fact that as changes to banking policies are under internal discussion, the issue is not yet deemed appropriate for either the party or government dailies.

  3. [3]

    Forms of electronic money, including credit cards, were extensively and at least implicitly explored favorably in Hakpo articles as early as 2013. See Ri So’n, “Understanding Electronic Financial Services and the Direction of Their Development,” Kim Il Sung Chonghaptaehakhakpo (Ch’o’rhak, Kyo’ngje) 2, (2013); and Ryu Ch’o’n, “Types of Electronic Money,” Kim Il Sung Chonghaptaehakhakpo (Ch’o’rhak, Kyo’ngje) 3, (2013). For the issue of loan and savings interest, see Nam So’k-ch’un, “Composition of Commercial Banks’ Funds in a Socialist Society and Their Characteristics,” Kyo’ngje Yo’ngu 2, (April 2019).

  4. [4]

    Quote translated from Pok Po’m, “Several Issues Drawing Attention Regarding Changes in International Financial Market at the Present Time,” Kim Il Sung Chonghaptaehakhakpo (Ch’o’rhak, Kyo’ngje) 2, (2013).

  5. [5]

    Kim Ch’o’l-so’ng, “Accurately Drawing up and Implementing a Money Circulation Strategy Is an Important Requirement for the Construction of an Economically Powerful Socialist State,” Kyo’ngje Yo’ngu 2, (April 2014).

  6. [6]

    Han Yo’ng-ch’o’l, “Accounting System of Financial Institutions and Important Issues Arising in Its Operation,” Kim Il Sung Chonghaptaehakhakpo (Ch’o’rhak, Kyo’ngje) 1, (2018).

  7. [7]

    Quote translated from Pak In-so’n, “Basic Principles Arising in Management of Socialist Commercial Banks,” Kyo’ngje Yo’ngu 3, (July 2019).

  8. [8]

    Ko Ku’m-hyo’k, “Important Issues Arising in Turning Banking Institutions into Commercial Banks at the Present Time,” Kim Il Sung Chonghaptaehakhakpo (Ch’o’rhak, Kyo’ngje) 4, (2016).

  9. [9]

    Translated excerpt of the “commercial bank” entry in the electronic version of the Korean Encyclopedia, compiled by the Encyclopedia Press Group and created by the Samilp’o Information Center, 2005.

  10. [10]

    Ko Ku’m-hyo’k, “Important Issues Arising in Turning Banking Institutions into Commercial Banks at the Present Time,” Kim Il Sung Chonghaptaehakhakpo (Ch’o’rhak, Kyo’ngje) 4, (2016).

  11. [11]

    Hong Chu’ng-po’m, “Unique Ideas and Theories on Socialist Commercial Banks,” Kim Il Sung Chonghaptaehakhakpo (Ch’o’rhak, Kyo’ngje) 3, (2018).

  12. [12]


  13. [13]

    Kim Jong Un, Let Us Vigorously Accelerate Powerful State Construction by Bringing a Turnabout in Financial and Banking Work—Letter Sent to Participants in the Third Conference of National Financial and Banking Functionaries—December 13 Juche 104 (2015) (Pyongyang: Workers’ Party of Korea Publishing House, 2017), 15-16.

  14. [14]

    Quote translated from Hong Chu’ng-po’m, “Unique Ideas and Theories on Socialist Commercial Banks,” Kim Il Sung Chonghaptaehakhakpo (Ch’o’rhak, Kyo’ngje) 3, (2018).

  15. [15]

    Cho’n Ryong-sam, “The Consolidation of Currency Circulation and the Method of Its Realization,” Kyo’ngje Yo’ngu 1, (January 2017); and Han Yo’ng-ch’o’l, “Accounting System of Financial Institutions and Important Issues Arising in Its Operation,” Kim Il Sung Chonghaptaehakhakpo (Ch’o’rhak, Kyo’ngje) 1, (2018).

  16. [16]

    Ch’oe Yo’ng-nam, “The Essence and Characteristics of Financial Institutions’ Accounting System,” Kyo’ngje Yo’ngu 2, (April 2020).

  17. [17]

    Ko Ku’m-hyo’k, “Important Issues Arising in Turning Banking Institutions into Commercial Banks at the Present Time,” Kim Il Sung Chonghaptaehakhakpo (Ch’o’rhak, Kyo’ngje) 4, (2016).

  18. [18]

    Han Yo’ng-ch’o’l “Important Issues Arising in Accounting Systems of Financial Institutions and Their Operation,” Kim Il Sung Chonghaptaehakhakpo (Ch’o’rhak, Kyo’ngje) 1, (2018).

  19. [19]

    Quote translated from Kim Yo’ng-ryo’n “Important Issues Arising in Improving the Functions and Operation of Commercial Banks at the Present Time,” Kim Il Sung Chonghaptaehakhakpo (Ch’o’rhak, Kyo’ngje) 4, (2018).

  20. [20]

    Quote translated from Nam So’k-ch’un, “Composition of Commercial Banks’ Funds in a Socialist Society and Their Characteristics,” Kyongje Yongu 2, (April 2019).

  21. [21]

    Quote translated from Nam So’k-ch’un, “Commercial Banks’ Sources of Funds in Socialist Societies and Their Characteristics,” Kyongje Yongu 2019 4, (October 2019).

  22. [22]


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