Decentralization of Banks in Eastern Europe and the Soviet UnionEssay title: Decentralization of Banks in Eastern Europe and the Soviet UnionDecentralization of Banks in Eastern EuropeAnd the Soviet UnionAs Soviet communism collapsed in Eastern Europe in 1989, the countries of Central and Eastern Europe began the unprecedented transition from a centralized command economy to a market economy. The stages of transition included, liberalization, stabilization and privatization. All of these steps required decentralization of government assets and financial institutions. One of the most crucial parts of the transition was the decentralization of the banking system, which wiped out the centrally planned Soviet and Eastern European societies. Unlike most banking systems in market economies, the bank in the centrally planned economies acted as administrative agencies and had almost no common features with any commercial bank. These countries had to accomplish hundreds of years of economic evolution in a matter of a few years. In this paper I want to discuss how the command economy banks were decentralized and the causes of bank failure after decentralization. The second aspect I want to talk about is how laws and regulations were used to recover banks failure and eventually lead to a functioning system of commercial banks.
All of the post-communist countries of Central and Eastern Europe share a common political, economic and social background. The Soviet communism was implemented in the Eastern and Central European countries in the late 1930’s and early 1940’s. This change in government resulted in the transformation of the existing pre World War I political, economic and social structures of the countries. Existing governments were replaced with administrations that controlled the various regions through a standardized set of rules and formal norms that removed all social connections from the earlier years. Under these new rules all political, economic and social activities were controlled by a state dominated single party. When the party fell in 1989, the newly freed countries all took a separate path politically and economically. The main elements that all the countries had in common were the need to decentralize the government agencies and form an adequate banking system. (Lavigne)
The USSR and the Socialist Revolution The Soviet Union and the socialist revolution that began in the late Soviet Union began to create an independent communist government. In February 1989 the government elected a “National People’s Republic”. In the late 1990s the Socialist Party and the Social Democratic Party of Central and Eastern Europe (SSDP) founded the Socialist Democratic Party (SDPD). The second largest party in Eastern Europe was founded the Progressive Workers’ Party (PSP). The PSP’s main policy was to eliminate labor power, “workers’ power”, the economic and social conditions that led to class division, and in 1992 it was introduced an “International Workingman’s Congress” in the form of the International Solidarity and Labor Organization (ISOL). The Second International Working Congress saw the transition of the socialist development to an internationalist form of organization. In 1994, the Second International Working Congress was organized in the United States. The second congress, called the International Congress of the Left-Wing Communist Party of Eastern Europe (ISLPE) was held to decide on the development of the socialist system before moving to the United Nations as a whole in 1995. The United States government was not prepared to accept the United States as the only leading socialist country, but it began to formulate a “progressive agenda”. Most of the Soviet Union’s national leadership was made up of communist party legislators. After the USSR’s dissolution, it became obvious that the Communist Party of Central and Eastern Europe (PCEU) must be changed back to the socialist government that replaced communist party representatives. The PCEU held several congress every 12 months and formed the Executive Council. When the PCEU won the presidential election in March 1999, it started to take more control over its affairs. In August 1999, as a result of the economic crisis, elected President Boris Yeltsin ordered that the PCEU take over all branches of state, with the exception of one branch, the military, and the media. This meant the creation of a new political party called the party of the Soviets. After Yeltsin was elected President, the PCEU decided to become the party of the Soviets. The PCEU has its headquarters in the building of the U. S. Supreme Court Building.
The USSR’s Soviet Union The USSR’s Soviet Union was governed by the National People’s Republic of China under the rule of the People’s People’s Republic of China (PRC). The Soviet Union’s national leadership was formed in December 1949 by the Communist Party of Central Eastern Europe (CCCEE), and is dominated by the party of the Communist Party of Great Britain. However, the Soviet Union’s leaders were influenced by Russia, such as the Marxist-Leninist, M.I. Leninist Communist Party (Marx-Leninist), and the Russian Social Democracy Party, called the Communist Party of Central and Eastern Europe. These political entities were run by representatives of the ruling regime and the government. The political organizations that were active around the world included the Communist Party of Central and Eastern Europe (PCEU), PAP, the Socialist Democratic Party of Eastern Europe (SSD), the Leninist, Bolshevism-Leninism Central Committee of Germany, the Communist Party of Poland, the Marxist-Leninist Party of the Soviet Union, the Central Committee of the People’s Republic of China (CPCEU), and various other national organizations. The organization of the CSEE led to a total collapse in the Soviet Union during the late 1990s. It became clear that the collapse of the Soviet Union was due to the Russian leadership’s position of being unable to change things and therefore no change was possible after 1992.
The fall of the Soviet Union was the culmination of the socialist revolution that began in 1989. By the late 1990s the communist economy and the new world order had completely disappeared.
The Soviet Union’s political, economic, environmental policies that were
Within the communist system, the banking system was based around a single Central bank which performed both the central bank operations and extended credit to industry within the country. The central bank was assisted by savings banks which collected deposits. No commercial banks existed. The bank was property of the government and only the central planner could decide on capital allocation and production levels. The functions of money did not exist within the command economies. Within the governing area, money was simply used as an accounting tool. The currency was based on convertible rubles and had no use outside of the council for mutual economic assistance trade zone countries. When more currency was needed, they simply printed more money (Lavigne). There were no interest rates to be effected by money supply, prices or demand. The bank was property of the government and only the central planner decided the ways in which money was dispersed throughout the country. Money passed through the economy through a planned central economy where resource efficiency was not a priority. The plan allocated cash to the specialized banks that represented each sector of the economy. Loans were given without consideration on whether or not they could be repaid. These loans were simply issued to industries to cover losses and production requirement failures. This type of the policy encouraged poor management, inconsistent repayment plans and reduced money circulation (Boone).
Once the government decentralized, the one bank system was transformed to a two tier banking system. This two tiered system broke the one bank system into a Central bank and independent commercial banks. The system was switched from a scenario where there was no outside money, to a system that included inside money, (the liabilities of the bank rather than the state). The banks were created to help serve three roles: support stabilization, finance the economy and facilitate in privatization of enterprises. The creation of these new banks did not mean that the old bad debts disappeared. The new banks inherited all the bad debts that were given throughout the communist rule. Another problem occurring with bad debts happened with the issuance of new loans. These new banks began issuing loans to help the various industries trying to privatize. The problem with these loans is that they were non-performing loans and were immediately in default. The transition economies had a very high ratio on these non performing loans compared to actual performing loans. Soviet countries Georgia and Tajikistan led the way with more than forty percent of the loans issued were under