In the SU, production and exchange of goods and services had been organized through a network of branch ministries, banks, informal contacts between firms and some “pseudo markets”.
The transformation of the economies of the CIS affects the rules according to which the respective banking sectors function. We first describe the received banking system of the SU.
Exchanging goods on the spot against money involves high transaction costs. In order to save these costs, economic agents write contracts with each other that link the provision of a good or service today with the payment of some money tomorrow.
Experience in the West and in the East shows that state ownership of firms does not provide the incentives for managers to behave in a profit-maximizing way and to undertake effort in order to restructure the firms they are responsible for.
The main role of markets is to allocate inputs and outputs to their efficient use. The system of markets can however only fulfil this function if prices emerge through the interaction of demand and supply and not according to political objectives.
Stabilization entails two elements: creating a stable and convertible currency, and reducing budget deficits and accumulated debts.
In a market economy, banks fulfil a number of important functions: they collect savings and allocate them to the most efficient firms; they facilitate payments and thus reduce transaction costs; and they impose financial discipline on firms and households.
This part of the handbook provides some background for Western bankers and consultants who may not always be acquainted with the specificities of banking in the CIS. Figure 1 presents our approach to the understanding of banking in transition.
EBTRA was created in order to increase the efficiency of these projects by providing a platform for the cross-fertilization and co-ordination of financial services projects in the CIS through the organization of seminars and conferences, and by developing and distributing materials that enhance training, consultancy and twinning activities.
