Evolution, Problems and Prospects
New Horizons in Money and Finance series
Edited by David Lane
Chapter 1: The Evolution of Post-Communist Banking
1 David Lane The discussion of economic transition/transformation in the post-communist countries has revolved around the focal points of the introduction of markets and the privatization of assets. The banking system, the role of money and their implications for economic development have been considerations of a secondary order initiated as a consequence of the hyperinﬂation of the early 1990s and the ﬁnancial collapse of 1998. The role of banks, however, has been crucial in the development of capitalism. As part of a market system of autonomous proﬁt-motivated units, banks have become a crucial part of the capitalist system. As Ingham has contended, the creation of credit-money by banks and states is ‘constitutive of capitalism’. What fuelled the development of capitalism, he has argued, was the ‘capacity to create “mobile” money in a form that integrated the new “private” bill and note credit-money of the banker-traders with the existing forms of “public” coinage currencies’ (Ingham, 1999, p. 79). Essentially, banks are institutions which through the provision of a supply of money (bank credit) promote, or at least facilitate, the growth of wealth. As well as being a major source of wealth creation for the bankers themselves, the power to issue money gave banks considerable control over the allocation and division of economic resources. By the withdrawal of credit clients would be bankrupt, and by allocating capital between diﬀerent end uses banks inﬂuence the ways economies develop. However, banks have not always been positive for economic development. There...
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