The primary function of banks during economic transformation is seen to be provision of an efficient payment mechanism. The lack of banking skills, particularly in credit allocation, is seen as the major problem in achieving stable monetary systems. This is a problem which can be expected to last many years. The solution is to limit banks to very safe assets (initially central bank liabilities). Combining such safe banks with a monetary rule would provide stable monetary systems during transition.

---

April 1993     Paper Number CEPDP0141

Download PDF - Creating Stable Monetary Systems in Post-Communist Economies