Socialist Banking Systems and their Reforms

Centrally planned economies (CPEs) have been characterised by public ownership of the means of production, centralised bureaucratic management of the economy, a high rate of mobilised savings at the macro level, strict planning of outputs and stock at the micro level, and output orientated planning based upon priorities. However most CPEs, for reasons of ‘operational dissatisfaction’ or ‘performance dissatisfaction’ (Brown and Neuberger, 1989), or even owing to a growing awareness of problems beyond the purely economic, have been reforming their economic systems. They have been abolishing comprehensive control hierarchies and their system of mandatory planning and centralised resource allocation. As an essential component, their banking systems have also been through a process of great change. The conventional goal of the reforms is to decentralise the ‘overly centralised’ banking system in order to achieve greater competition and efficiency. However there are side effects, and there remain some problems regarding the functions, in particular the control functions, of the banking systems of these economies.