North Korea boosts salaries, introduces cash cards for more currency control

Paying with plastic means citizen-run informal markets could suffer.
By Sung Hui Moon and Jieun Kim for RFA Korean
North Korea boosts salaries, introduces cash cards for more currency control A woman swipes a North Korean debit card at a restaurant in Pyongyang, North Korea, Dec. 9, 2011.
David Guttenfelder/AP

North Korea is raising workers’ salaries and paying them with cash cards to discourage them from frequenting local markets, residents in the country told Radio Free Asia.

The salary increases kicked in at the end of December, with workers in key industries such as foreign currency earners and fertilizer companies getting paid more than 40 times their previous rate, in keeping with similar hikes in the price of rationed rice, which is available only to certain segments of the population. 

Other industries saw an increase of about 10- to 15-fold,  a resident of the northern province of Ryanggang told RFA Korean on condition of anonymity for security reasons.

The raised salaries are being paid out on cash cards, which people can only use at government-owned stores and establishments. 

The goal seems to be to exert more control over economic transactions and benefit government-run businesses, instead of family-run businesses in markets, the sources said.

“Instead of paying salaries in cash, the payment is made using an electronic payment card issued by the central bank,” the resident said.

The cards will funnel business into government-owned stores, another Ryanggang resident told RFA on condition of anonymity for security reasons.

“The idea is that they don’t go to the market, and they will only use department stores and grain stores,” the second resident said.

But there is still a need for the open-air market, because the government stores don’t sell everything, he said.

 “There are no products in department stores and there is only rice and corn at the grain stores. I have to go to the marketplace to find clothes that fit me and sticky rice [not sold elsewhere.]”

From the ashes

North Korea’s marketplaces were born out of economic disaster.

Though North Korea’s planned economy was designed with the government in control of all commerce, it collapsed after the fall of the Soviet Union and a cessation of aid from Moscow, resulting in a famine that killed hundreds of thousands of people, or possibly more than 2 million, or about 10% of the country by some estimates.

The resulting inflation meant that government-assigned jobs no longer paid a living wage, and people had to go into business for themselves to find a way to make ends meet. For many families, opening a stall in the open-air market became a means of survival.

The marketplaces sell living essentials and other goods smuggled in from China or stolen from the military, or services provided by residents, and the government has almost no ability to tax transactions between buyer and seller, paid mostly in U.S. dollars or Chinese yuan.

The marketplaces will not die out overnight though. The new increased salaries are still not enough to live on, so people will still need other income sources. 

But paying significant sums of money to workers on cash cards will take some business away from the marketplace, especially when digital cash is more widely accepted in the future, an expert from Ryanggang told RFA.

“There are not many things that can be purchased with an electronic payment card yet, but this problem will be solved if more electronic payment systems are installed in the future,” he said. “When electronic payment cards become widespread, money in residents’ hands will naturally flow into the banks.” 

He compared the switch to cash cards with a 2009 change in currency, which wreaked havoc on savings, as the government limited how much of the old currency each person could exchange for the new. The old currency became worthless, and those who were not able to exchange it lost out.

“Now, cash is being replaced, and the salaries are paid with electronic payment cards that can suppress cash,” the expert said. “Therefore, there will be no confusion like the currency exchange in 2009.”

The intellectual said that the authorities believe that the marketplaces will be neutralized once this switch to digital cash occurs. 

“[But] in order to neutralize the marketplace, the conditions are that grain stores must be operated without restrictions and department stores and store networks must carry enough products as requested by residents,” he added.

Translated by Claire Shinyoung Oh Lee. Edited by Eugene Whong and Malcolm Foster.


Add your comment by filling out the form below in plain text. Comments are approved by a moderator and can be edited in accordance with RFAs Terms of Use. Comments will not appear in real time. RFA is not responsible for the content of the postings. Please, be respectful of others' point of view and stick to the facts.