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Within the worldwide demise of socialism several centralized economieshave been moving from planned economic systems to market orientedsystems By doing so major reforms had to be made in the areas ofmonetary and financial policy This paper will focus on specific changesin the financial system concentrating on monetary policy actionsundertaken in China and Poland and their influence on the markettransition The objectives of monetary policy are to stabilize prices controlcredit and promote economic growth It is important to note thatsuccessful market transitions cannot occur using monetary policy aloneOnly if used in conjunction with fiscal policy actions will a statesystem be able to make the migration over to a private market-orientedsystem The biggest factor in China to transformation is the reform that wasneeded in the financial sector Before the Chinese leaders undertookreforms financial resources were highly centralized Highly centralizedresources thus would not be readily available nor would they have beenoptimally distributed Before reforms in the late 1970s all thatexisted were closed financial markets no financial instruments and allfinancial institutions were in one way or another part of the PeoplesBank of China or PBC The PBC was both a central bank and a commercialbank In the role of central banker it performed the duties of issuingbanknotes and circulating currency Furthermore it was the only sourceof credit in China since debt between firms was outlawed All financialtransactions of any kind between firms also went through the PBCLastly the PBC was the governments bank As a commercial bank the PBCoperated similar to its western counterparts taking deposits andproviding credit The bank regulated the amount of credit available and its allocationwith the credit loaned to firms or sectors of the economy as dictated bythe annual credit plan Interest rate set by banks were intended toencourage savings but really did not do much for deposits and borrowingsince the rates were kept extremely low for long periods of time So inactuality it discouraged savings by firms Finally the pre-reform monetary system featured two
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