Money, Banking, & Credit in the Soviet Union & Eastern Europe PDF
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Money, Banking, & Credit in the Soviet Union & Eastern Europe ADAMZWASS Money, Banking, & Credit in the Soviet Union Eastern Europe & © M. E. Sharpe Inc. 1979 Softcover reprint of the hardcover 1st edition 1979 978-0-333-26940-4 901 North Broadway White Plains, New York 10603 Translated by Michel C. Vale Published simultaneously as Vol. XVII, No. 1-2, of Eastern European Economics All rights reserved. No part of this publication may be reproduced or transmitted, in any form or by any means, without permission First published in the United States ofA merica 1979 First published in the United Kingdom 1979 Published by THE MACMILLAN PRESS LTD London and Basingstoke Associated companies in Delhi Dublin Hong Kong Johannesburg Lagos Melbourne New York Singapore Tokyo British Library Cataloguing in Publication Data Zwass, Adam Money, banking, & credit in the Soviet Union & Eastern Europe. 1. Finance-Europe, Eastern 2. Finance Russia I. Title 332'.0947 HJIOOO ISBN 978-1-349-04769-7 ISBN 978-1-349-04767-3 (eBook) DOI 10.1007/978-1-349-04767-3 This book is sold subject to the standard conditions of the Net Book Agreement Table of Contents Preface vii Chapter 1. Money in a Planned Economy 3 Chapter 2. The Price System in the Planned Economies 24 Chapter 3. Are the Planned Economies Shielded from Inflation? 57 Chapter 4. The Banking System in a Planned Economy 78 Chapter 5. The Credit Policies of the Planned Economies 115 Chapter 6. Money, Credit, and Prices in Foreign Trade 155 Chapter 7. Summary: Perspectives for Incorporating CMEA Currencies into International Trade 215 About the Author 233 Preface The reorganization of the banking system and the evolution of credit policy in the Eastern countries, the intensification of the activities of the international CMEA banks, and, most important, the monetary problems that have arisen due to the rapid expan sion of trade and credits in relations between East and West, have made necessary a new evaluation of the possibilities and limits of the monetary and credit system of the planned economies. Drawing upon my own experience as an official of the Soviet and Polish banking systems and the Department for Financial and Monetary Affairs of the CMEA, I have attempted in this monograph to examine the new developments in this area in light of tradi tional practice and prevailing theory, and to arrive at some new conclusions. This task is more complicated now than it was be fore: the Eastern monetary system cannot be considered uniform, for neither the Soviet steering model nor the Soviet credit system can be viewed today as the decisive prototype for the whole Eastern bloc -the Hungarian economic system, for example, differs radi cally from that of Romania. The task is not easy because official theory, first of all in the Soviet Union - based, as it is, largely on Marxian analysis of the market system of the past century -con trasts more and more with the realities of the market and even moreso with the actualities of the planned economies. Detailed analysis of recent developments in each country in the area of monetary matters, viewed against the backdrop of their evolving vii Money, Banking, and Credit steering systems demonstrates that the monetary systems of the Eastern industrialized societies of today are confronted with two problems: in contrast to the conceptions of the first develop ment period, the planned economies cannot steer to a moneyless society and are forced to enlarge the market features of their monetary instruments; they cannot hope for success in these en deavors, however, for a state-owned and centrally planned econ omy sets material limits for money, credit, and prices as in struments of economic activity. The present study shows clearly that the strong efforts to find a motivated application for credit relations foundered. So far practice has not given a clear an swer to the question as to where the limits between state budget subsidies and state banking credit could be drawn. The experi ence of every Eastern country and its results in this regard are examined here. Many studies have described the controlling functions of the Eastern banking system. This book moves a step forward by trying to assess the effectiveness of these functions. It looks not at the influence of the banking system on the level or pro portions of production, however, for such control never could be viewed as a serious policy objective. Rather, it examines the results of banking control in the areas where such monitor ing was considered as the banks' decisive task, mainly in the control of inventories, in the maintenance of a stable currency and, lately, more and more in the monitoring of the performance of capital investments. With the help of available data, this study demonstrates that in these areas the planned economy is no more - and sometimes less - successful than the market economy. The investigation makes clear that stability of the currency in the planned economy is but a fiction. While a greater than envisaged volume of money in the production sphere might be neutral, since the possibilities for its applica tion are limited, excessive money in the household sphere carries an evident inflationary impact. Inflationary pressure may be offset by budgetary subsidies, but only by limiting the basic function of price as a cost recovery instrument and equal izer of demand and supply; and while inflation in the planned viii Preface economies might be given different forms than in market econ omies, its impact on the consumer is just as great. This investigation carries forward my earlier endeavors in Money of Two Markets ( 1968) and Monetary Cooperation Between East and West (1974) to assess the monetary problems that have arisen as a result of the intensification of foreign trade within the CMEA area as well as between East and West. It shows clearly that, while a money of limited functions could more or less satisfy the internal needs of the planned economies, albeit with immense losses in quality, the Eastern nations have re mained unable to develop adequate monetary instruments either in intra-CMEA trade or in economic relations with the West. Recent developments inspire the conclusion that while confine ment of the currency to the internal sphere might have been ad equate during the early stages when the planned economies tended toward autarky, it comes a severe handicap now, when the international division of labor is viewed as an important fac tor in technical progress and comparative cost advantage, as a precondition for its efficiency. This study shows in a variety of aspects the consequences of the limited functions of Eastern curriencies in intra-CMEA re lations as well as in East-West trade - first of all, the unsuc cessful efforts to multilateralize foreign trade and to make the transferable ruble attractive for third countries, as well as the impact of the existing unequal instruments on East-West trade, which reduces the Eastern countries to the level of the developing nations. While the possibility is remote that the planned economies could introduce money with market-type features in the fore seeable future, the conclusion is drawn that the integration of Eastern markets into the world economic and monetary system is a condition sine qua non for further intensification of East West economic and political relations. This book and Monetary Cooperation Between East and West were written under different circumstances than The VO'iUme and Structure of Money and Money of Two Marlrets; nevertheless, all were written with a single purpose: to make ix Money, Banking, and Credit the Eastern monetary system and its prospects for evolution more understandable in order to promote the strengthening of East-West cooperation. I should like to thank Janet Lincoln for her brilliant editorial assistance, as well as my wife Friderike for gathering the source materials and preparing the text. Adam Zwass X Money, Banking, & Credit in the Soviet Union & Eastern Europe
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