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Introductory Framework

In: Financial Reform in Central and Eastern Europe

Author

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  • Stephany Griffith-Jones

Abstract

The financial sector has several particularly important roles to play in the transition to the market of Central and East European countries. These roles are especially difficult to play properly given the long-term tradition of passivity which characterised banks’ functions and behaviour during the period of central planning, and the non-existence of other financial institutions common in market economies, such as stock exchanges. Indeed, the monetary system, which consisted broadly of the mono-bank and its specialised branches, was a tool of the plan. The mono-bank had little autonomy; it guaranteed enterprises the loans needed to carry out planned transactions, in observance with the central plan. Therefore, risk considerations did not affect lending decisions. As a result, there was no tradition of risk evaluation in these banking systems. Furthermore, when the mono-bank lent money to enterprises with losses, which they would be unlikely to pay back, it was performing not just a banking function, but essentially a fiscal function. Therefore, it was — and to some extent still is — difficult to separate fiscal from monetary policy.1

Suggested Citation

  • Stephany Griffith-Jones, 1995. "Introductory Framework," Palgrave Macmillan Books, in: Stephany Griffith-Jones & Zdeněk Drábek (ed.), Financial Reform in Central and Eastern Europe, chapter 1, pages 3-15, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-23800-2_1
    DOI: 10.1007/978-1-349-23800-2_1
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