By professor Ri Won Gyong at Kim Il Sung University
Emerging as an important task in successfully developing the party’s economic strategy is to enhance the role of the socialist bank.
The bank is a powerful means for the party and state of carrying out their economic policy. A socialist state ensures an extended reproduction and promotes the welfare of the people through correct utilization of banks.
The socialist bank should be supported by a certain amount of funds if its functions and role should be enhanced. The funds needed for bank’s activities are guaranteed through credit-receiving activities and the management of collected money is guaranteed by their credit-giving activities.
A bank in the socialist state is a state expert organ, which handles financing business. The socialist bank collects various forms of money through economic levers such as cash- and non-cash circulation and credit, and effectively utilizes it for the people’s economy. This reflects the fact that commodity-money relations still remain in a socialist society and that a movement of material and property accompanies a movement of currency funds.
A socialist state provides a monetary system, which guarantees the bank’s money-collecting activities. The bank infinitely creates its fund on the basis of this system. Fund activities will be smoothly guaranteed only when the bank purposefully develops its own activities to increase its fund. The solution of the fund issue is an indispensable factor for smooth bank operations.
The bank fund means all the money utilized in fulfilling the bank’s functions. The amount of a banks’ fund is a reflection of its scale as well as its business result.
The structure and amount of funds heavily influence bank’s operation.
In the capitalist society, the structure and amount of their funds constitute a question of life and death. Thus, the capitalist economy sets great store by a bank’s ability to fulfil its obligation in terms of its liquidity.
In the socialist society, the liquidity issue is not raised. This is related to a socialist character of the bank. However, it is a matter of great significance to correctly define the character and structure of the fund and pay attention to the movements of funds.
Two types of funds operate the bank as an economic organ, which deals with economic relations established in the movement process of financial funds. The one is the absorbed fund and the other is its own fund or something similar to it.
The base of the bank’s fund is the former. The absorbed fund is the money which a bank temporarily collects from organizations, enterprises and individuals for its own use. Thus, the right to use and manage the money is tentatively transferred to the bank although there is no change in the relations of its ownership. This feature stems from the character of temporary idle capital.
The fund in the form of unused money in the hands of organizations and enterprises is made up of enterprise currency funds of different characters, a state financial fund and funds of non-productive organizations. What constitutes an overwhelming proportion in it is the monetary fund which is temporarily divorced from the process of enterprise management. This fund takes the form of liquid funds in enterprises. The money form which is temporarily divorced from the process of movement of liquid money which the state grants as liquid property to enterprises, is deposited in bank accounts. This fund, which is originally intended to serve the management activities of enterprises, takes the form of material property after adopting the form of money at a certain level in the process of property circulation, and guarantees a social reproduction process.
The money form of liquid property is put in bank accounts to become an absorbed fund. In this case, the funds of organizations and enterprises are saved in the bank to function as their reserve means of purchase and payment. At the same time, as these funds secure the movement of liquid property, they come to assume the character of reserve currency and of monetary fund needed for the management activities of enterprises.
It is proper in light of its foundation and mission that the deposited funds of enterprises are utilized for management and operation. It is related to the bank’s peculiarity that a liquid fund functioning as a monetary fund, becomes a monetary reserve when it is deposited in a bank. The bank turns an unemployed fund in its hands into a functional monetary fund. As the fund deposited in the bank stops its movement as money, it can serve as a reserve fund. This reserve is used for meeting additional monetary demand arising in organizations and enterprises in their management activities including payment and purchase. Thus, the idle monetary fund is transferred into a functioning monetary fund.
There is some difference in their character between the state financial fund and the monetary fund of non-productive organs, which constitute the idle monetary funds of organizations and enterprises, and the idle monetary fund of enterprises.
Although the former functions as an absorbed fund in the bank, it takes the form of a state reserve fund as it is the fund raised in the process of implementing the state budget.
The idle monetary fund of enterprises, idle state financial fund and idle monetary fund of non-productive organs – all these constitute the absorbed funds of the bank. However, the bank should take into account the difference of their characters when it deals with these funds. The extra fund generated in the process of implementing the state budget can be utilized for a relatively long term as it contains a factor of the accumulated fund. Meanwhile, the unemployed fund of non-productive organs can stay in bank accounts only for a short period due to its characteristic method of usage. It is important to examine these structural elements in utilizing temporary idle funds.
One of the other different structural factors of absorbed funds is people’s income. Unlike the idle funds of organizations and enterprises, money in the hands of people are not obligated to be absorbed by banks. Thus, private income accounts for only a small part of the absorbed fund. Whether people open an account or not is up to their will. However, the bank with its own functional character plays a mediator’s role in turning the private money into funds for economic activities.
The capitalist bank acquires for its capital the money which is not expected to function as capital, through persuasion. This function of the capitalist bank allows it to gather small funds and turn them into a tremendous financial power, to influence the capitalist economy. Concerning this function, there are developed various organs in the capitalist society aimed at collecting money such as postal offices and savings banks.
This peculiar function of the capitalist bank should be made use of by the socialist state in order to meet the total social demand in accordance with the socialist character. It is a law-governed phenomenon that the socialist bank widely collect money from residents and utilizes it to meet additional financial demand from enterprises.
The absorbed fund of the socialist bank differs in essence from deposits with the capitalist bank.
The deposit in the capitalist bank means an accumulation of capital which permits loan extensions, and the bank creates various means of credit circulation means based on it. Thus, bank savings are main sources of massive creation of monetary capital of a fictitious character.
However, deposits in the socialist bank are a currency and monetary fund which have a real base as they are temporarily divorced funds of organizations and enterprises in their reproduction process, or the state’s accumulated fund. This fund is not of a fictitious character.
The deposit position of the bank indicate the actual conditions of the movements of real goods.
Apart from the absorbed fund, the bank has its own fund of a fixed scale. The funds which belong to the bank funds also include cash.
Cash is one of the main structural elements of the bank fund as the Central Bank issues bank bills of the country. Cash circulated by or preserved in the safety boxes of organizations and enterprises does not belong to the bank fund. In the issuance of bank bills, deposited cash and money can be used as a bank fund but a reserve fund can not be a factor of the bank fund as it is not yet in circulation.
The socialist bank fund is distinguished from the capitalist one in some points.
First of all, the socialist bank fund is based on state ownership while the capitalist one on private ownership. The relations of ownership of bank funds may be a complicated matter.
This issue should be considered in light of the relations of the ownership of fund sources. The relations of ownership of funds are not changed even after money is saved in the bank. However, as the bank is a state-owned organ, its absorbed fund is utilized as a state-owned fund. The fund of organizations and enterprises is also a state-owned one in the long run. However, this fund should be preferentially used for enterprises as it is originally granted to them on the management principle of an independent accounting system.
The socialist bank, once it collected a fund, utilizes money like a state fund in accordance with the state’s demand, even if it is cooperative-owned or privately owned one.
Relations of ownership in the capitalist society may be more complicated than those in the socialist society. The fund of financial institutions including industrial banks contains an element of private ownership even if they are absorbed funds or lendings. In the monetary capital, which a bank of issue utilizes, is contained one which represents an element of state capital along with private capital.
The difference in character of ownership of monetary fund between the bank of issuance and others is related to the difference of their missions and activities. Today, the bank of issuance is getting more state-capitalist. Thus, it has been playing its role as the “bank of banks.”
As goods movement and currency movement are compatible with each other in the socialist society, the bank fund made of temporarily divorced funds has a solid foundation of goods.
The fund of the capitalist bank can be said to be of a fictitious character. This is because a large part of its absorbed fund is watered capital. The fictitious character of the bank fund links the movements of watered capital to bank’s activities in various fields. Thus, it contains a risk of catastrophe when an abnormal situation is created in an economic cycle. Such a tendency had grown in the 1980s and the 1990s when bond market operations were widely spread in the capitalist camp.
The fund of the socialist bank is closely related to the social reproduction process as it has a sound foundation of real goods. This situation allows a planned utilization and management of the bank fund.
The planned utilization and management of funds means that the utilization method of the bank fund is purposefully established in accordance with the changing situation in the process of social reproduction. The bank gives consideration to the character of collected money, fully mobilizes temporarily divorced funds and utilizes it in accordance with the conditions of enterprises’ activities. The bank contributes toward accelerating the social reproduction process by utilizing the mobilized currency. This is a productive role the bank plays.
Unlike the capitalist bank fund, the socialist one serves as a of controlling by the won on the production and circulation process by the won.
The capitalist bank grasps and controls enterprises through its fund, while forming financial fundｓ, collaborating with monopolies. This does not mean that the bank purposefully serves enterprises but that the latter is subordinated to the former. The capitalist bank grasps the actual conditions of enterprises and intervenes in its management in various ways to increase its profits and avoid the risk of the latter’s bankruptcy. Advocates of capitalism and bankers put emphasis on this point, calling it an organizational function of the bank. This function creates and aggravates irreconcilable hostile contradiction between the two parties.
Meanwhile, the socialist bank fund is a powerful control means by the won.
The bank is an economic organ which implements control activities by the won. The currency “won” which the bank utilizes for its control activity literally means the bank fund. The bank implements various control activities in utilizing its fund. They include loan control, non-cash liquidation control and revenue and expenditure control.
The bank fund as a means of control by the won plays a significant role. For a further enhancement of the bank’s role, the bank fund should be mobilized at largest scale and rationally utilized. The bank’s controlling activities by the won bear fruit only when they are preceded by these processes. Thus, the bank, without solving the fund issue, can not fulfill its control function.
Control by the won is an economic means of control which differs from control by a state power and a control by an administrative organ.
Control by the won is one of the forms the currency takes in the process of its movement as an economic lever. Thus, the bank should always pay attention to guaranteeing the financial fund needed for its own activities in accordance with the prevailing economic situation of the country.
The fund issue of the bank is that of the Central Bank resources in practice.
The fund accumulated through credit-receiving activities is the bank’s resources. The bank’s resources are a barometer of its activities. Whether the bank fulfils its functional role or not is indicated by currency. The result of the implementation of the bank’s functional role concerning the state budget can be indicated by the balance of budget accounts, and the result of the implementation of non-cash settlements of accounts by the balance of accounts of organizations and enterprises. The result of the implementation of the bank’s function of currency control and adjustment affects the scale of issuance of bills and balance of accounts of enterprises and organizations.
The bank’s resources exist in the form of balance. As the balance of the bank’s accounts changes every day and every moment, it is impossible to calculate the cumulative total. As the bank closes its books for the day when it ends its service hours, an average daily balance is regarded as the basic data on bank activities. Thus, if the bank’s resources are to be calculated in accordance with the scale of temporarily divorced funds, which may be actually created in a planned period, the calculation should be based not on the cumulative result but on the average balance of the accounts.
To create and utilize bank resources by making use of this distinctive quality is a principled demand the bank is required to meet.
We should take care not to think erroneously that the growth of production automatically increase bank resources. This way of thinking has a negative effect on organizing and implementing resources-creating activities. In the socialist society in which commodity-money relations still remain, an increase in the volume of products may increase the volume of currency. However, their growth scale is not proportional. If the circulation speed of currency grows faster than before, the circulation of the increased volume of products can be smoothly guaranteed. It is wrong to think that the volume of currency and bank resources proportionately grow if the volume of products grow. This wrong theory fails to correctly understand mutual relations between currency and value. Currency and value belong to different economic categories. Currency is a unique form of value and represents an equivalent. Thus, currency, which has its own circulation speed in the process of its movement, serves as a means of expression of value. This is an established fact verified in all the economic systems in which commodity-money relations exist. It is non-scientific to regard currency and value as identical.
The theory that the bank’s resources proportionally increases when their products are increased and their value enhanced, does not apply to the bank activities and economic activities of our country. There has been few such a case reported in our country. Bank resources are directly related to credit-receiving business, and not linked to the management activities of enterprises.
It has been verified that an increase in products and their circulation amount are not proportional to an increase in the balance at the bank. In order to increase its balance, the volume of products and their circulation amount should be increased, but at the same time, business relations with related enterprises should be changed to reach the same level. In a word, the credit-receiving activities of a bank will reflect not only a change in the social reproduction process but also other changes in various and complicated management activities including financial activities of factories and enterprises. The scale of loan extensions in a bank loan plan does not go beyond the planned scale of bank resources.
Although the capitalist bank plays a credit-creation role through credit giving activities, the socialist bank does not perform this function. What we should care about in creating and utilizing bank resources is that we should not erroneously think that the bank could unlimitedly increase its resources through loan-extension activities. This reflects the wrong idea that if the loan fund is paid through credit-giving activities, the fund of enterprises will grow and as a result, the bank can increase its resources as it wishes.
Fund-borrowing largely influences an increase in the fund of enterprises. However, the planned loan extensions in the socialist society are supported by bank resources, and bank resources embody the principle of unity between product movement and currency movement.
Bank resources are premised banks’ total activities. At the same time the bank activities are restricted by the scale of bank resources. The bank can not promote financing without corresponding bank resources nor can it enlarge its activities without a necessary scale of bank resources. Thus, it is proper to estimate a bank’s conditions through its position of bank resources. In general, the bank’s efficiency is high when large sums of currency are absorbed and bank resources increased. By contrary, its efficiency is low when the bank’s absorbed funds and resources are on a low level.
All the bank clerks should have a correct viewpoint and position regarding the bank fund and resources, and make efforts to play an active role in promoting socialist construction and improving the economic management of the country.
― The People’s Korea, 7 July 1999.
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