ABSTRACT
The role envisioned for the banking system in the classic Stalinian model of a centrally planned socialist economy is relatively simple. The banking system in a command economy to a large extent lacks the tools with which to achieve its main objectives. The one-sided view of the banking system as merely supplier of funds to serve production and its continuing legacy constitute an important Chinese departure from the basic Soviet model. China's banking system accomplished a great deal during the 1949-1957 period. The banking system also helped dampen inflationary pressures during the rapid industrialization of the First Five Year Plan. Efforts by the banking system itself to control inflation have focused on the quantity of currency in circulation. Foreign exchange loans are often paired with loans in Chinese currency, which cover domestic financing needs. Private financial returns on many projects supported by investment loans, particularly small ones, appear to be very high.
