The Evolution of Banking and Central Banking in Modern Greece: A Historical Retrospect

This paper aims to trace the history of banking and central banking of pre-WWII Greece during the gold standard period. In it, we study the country's financial structure and its process of financial development. We assess several indices of financial development and study their evolvement. History and data show that the country's financial development had passed through different stages. Financial depth increased at the turn of the 19thcentury when the country made efforts to join gold, and expanded further until the early 1920s. However, based on behavioural indices, banks were poorly managed in terms of asset liability; they suffered from an inadequacy of capital and they were highly leveraged. Second, an analysis of the composition of money supply and its long-run behavior suggests that monetary-base variations were the proximate determinants of money supply movements at least for those periods when the country was on fiat money. Hence, the money (M3) multiplier had a minor impact, reflecting low public confidence in the currency and the domestic banking system. Third, central banking is viewed with regard to monetary-policy strategy, the monetary policy implementation framework and government interference. During the interwar period, the balance sheet of the Bank of Greece revealed an excessive focus on the chosen monetary policy strategy of a currency peg. Furthermore, it controlled domestic credit through standing facilities for the provision of liquidity either discounts or advances. Its considerable involvement in government re-financing however indicated low independence.