Credit Reforms

the aggregate of state acts aimed at changing the structure of the credit systems, the forms of credit, and the crediting methods functioning in a country.

In the age of premonopolistic capitalism, the aim of credit reform in a number of the capitalist countries was to adapt the credit systems to the needs of rapidly growing industry and trade. One example is the 1860 credit reform in Russia, which resulted in the elimination of the old credit institutions, such as the State Commercial Bank and the State Land Bank, and their replacement by a new state bank, organized, as its charter noted, “for reviving trade and for strengthening the monetary credit system.” In Great Britain, as a result of Peel's Bank Charter Act in 1844, the Bank of England became the bankers' bank, with one of its functions being the provision of financial assistance to private commercial banks.

In the present-day capitalist states, credit reforms have been carried out as part of the complex of measures for the state-monopoly control of the economy in the interests of the financial oligarchy. Thus, the 1913 credit reform in the United States, which set up the Federal Reserve System, concentrated credit resources that had been scattered throughout the country into a single banking center under the control of large monopolistic capital.

One of the forms of credit reform in the capitalist states has been the partial nationalization of the banks, although this nationalization and the consequent expansion of the state sector in the credit sphere has not affected the essence of credit relations in these countries.

In the postwar period the credit reforms in a number of capitalist countries have been accompanied by a considerable expansion of the state sector in the credit sphere, primarily through nationalization of the central banks of issue. In certain countries, Italy and France for example, not only the banks of issue but also the commercial banks and other credit institutions were nationalized. By the early 1970's in Italy and France, the major share of the assets of the entire credit system was held by the state and semistate credit institutions. In West Germany, half of all the assets in the credit sphere are in the state sector.

As a result of the credit reforms carried out in the capitalist states, bank credit has been further concentrated and centralized. The role of the central banks of issue has been increased, and they have been turned into important instruments of economic policy. For example, the Central Issue Bank of Italy, together with the Interministerial Committee on Payments and Credit, controls the opening of new commercial banks, the amount of bank stock capital, credit allocations policy, the conditions of transactions, and so forth. In certain countries, France for example, these functions are fulfilled by special governmental committees that control banking activities.

In the developing countries, credit reforms have been aimed at creating national credit systems. After the winning of independence in these countries, national centralized issue banks have been set up to regulate monetary circulation and carry out state policy in the area of credit. In Egypt, Syria, Zambia, Libya, Guinea, Tanzania, Algeria, and elsewhere, credit reforms have assumed an anti-imperialist character. In these countries the largest foreign banks have been nationalized. In some of the developing countries, in keeping with their development, the credit reforms have assumed the character of democratic changes: the governments have carried out a policy of nationalizing the credit systems by nationalizing private commercial banks and other credit institutions. Thus, in Egypt, the credit reform of 1961 nationalized all private banks and insurance companies. In Syria in 1963 the private commercial banks and insurance companies were nationalized. India nationalized the 14 largest commercial banks in 1969 and 42 private insurance companies of the 106 functioning in the nation in May 1971. In the course of the democratic reforms in Chile (the early 1970's), credit reforms were carried out in stages. At the end of 1972, 20 foreign and national banks had been nationalized of the 26 that operated in the country.

Credit reforms in the developing nations change the forms and methods of crediting. In some countries the credits of national development corporations have been widely distributed. A result of the nationalization of credit systems in a number of countries has been the use of preferential crediting. In India the nationalization of the largest commercial banks, once under way, made it possible for the government to implement a program of preferential crediting for measures to develop the backward regions of the country. The interest rates for the preferential credits in 1969 were set at 6 percent per annum (instead of 8 percent) and the term before beginning repayment for these credits was increased to 15–20 years (instead often to 15). The preferential period of repayment was increased from three to five years.

The credit reforms in the socialist states have been aimed at developing the credit systems and improving the forms and methods of crediting. Depending on the aims and tasks, they can be divided into reforms designed to alter the forms and methods of credit and reforms related to structural changes within the existing credit systems.

The Soviet credit reform of 1930 is an example of a change aimed at improving the forms and methods of crediting to match the pressing needs of economic development. The reform was made necessary by new economic conditions. Commercial credit had become an impediment to strengthening the principles of planned and centralized management of the socialist economy and to building up the interest of the enterprises in the results of their activities and in reducing production costs and fulfilling the accumulation plans. For these reasons, a decree of the USSR government of Jan. 30, 1930, replaced commercial credit with direct bank credit.

In 1932 a credit reform was carried out in the USSR to adapt the credit system structure to changing economic conditions (government decree of May 5, 1932). In order to establish a clear functional specialization of banking institutions as part of the development of socialist industrialization, the financing and crediting of capital investments (long-term crediting) were entrusted to new, specialized banks, such as the Prombank (Industrial Bank), the SePkhozbank (Agricultural Bank), the Torgbank (Trade Bank), and the Tsekombank (Central Municipal Bank). The Gosbank (State Bank) began to be concerned solely with short-term crediting.

In 1959, in order to achieve a greater concentration of resources in capital construction and to improve control over their utilization, the Bank for Financing Capital Investments (Stroibank SSSR) was founded; it centralizes crediting and financing of capital investments in all the sectors of the economy (except agriculture, forestry, water management, and consumer cooperatives, which are credited and financed primarily by the Gosbank of the USSR).

After the nationalization of the banks in the people's democracies, reforms were implemented to reorganize the structure of the credit systems (in 1946 in Poland, in 1947 in Bulgaria, in 1948 in Czechoslovakia, Rumania, and Yugoslavia, in 1948–49 in Hungary, and in 1950 in the German Democratic Republic [GDR]). New credit reforms aimed at improving the banking system were carried out in a number of the socialist nations in the 1960's and early 1970's. For example, in 1968 sectorial specialization of the banking apparatus was instituted in the GDR; two sectorial banks were set up, the Industrial-Commercial Bank and the Agricultural Bank. In Rumania in 1968 the Agricultural Bank and the Foreign Trade Bank were organized. In 1971, Bulgaria centralized its banking system: the Bulgarian Industrial Bank and the Bulgarian Agricultural Bank were abolished and their functions were turned over to the Bulgarian People's Bank. In 1971, the Investment Bank in Poland was merged with the Polish National Bank, and the functions of the Agricultural Bank, the Bank Handlowy, and the savings banks were significantly broadened. In 1971, Hungary transformed the Hungarian Investment Bank into the State Development Bank.

In all the socialist countries, credit reforms were implemented to eliminate commercial credit and replace it with direct bank credit. Commercial crediting was replaced by direct bank crediting in Poland in 1947, in Czechoslovakia in 1948, in the GDR in 1949, in Bulgaria in 1951, and in Hungary in 1952. In the People's Democratic Republic of Korea, commercial credit was abolished in two stages, in 1956 as an experiment for certain enterprises and then in 1959 for all enterprises. In Cuba in 1961, commercial credit was replaced by bank credit.

Credit reforms in the socialist countries have been one of the important tools for raising the effective use of credit resources; through better credit policies, the state can ensure the fulfillment of the most important targets of the national economic development plans and the increased prosperity of the working masses.