ABSTRACT
This chapter anlyses the impact of the Hungarian banking reform on patterns of credit allocation and illuminates some of the broader problems likely to complicate the establishment of Western-type financial systems in Eastern Europe. The purpose of the Soviet monobanking system, which was subsequently adopted by China and Eastern Europe, was to centralize control of money and credit. The Soviet monobank was part and parcel of the system of central economic planning. Control of credit under the monobanking system is based on two principles. The first is the separation of working capital and fixed capital. The system of control of working capital in the planned economies is designed to eliminate the possibilities for state enterprises to use their working capital assets for purposes inconsistent with the plan. The general acceleration of the Hungarian privatization process after 1989 has altered the ownership structure and competitive environment of the banking sector.
