STRATEGIES FOR RESTORING FINANCIAL STABILITY DURING THE TRANSITION FROM PLAN TO MARKET

Peter Bernholz points out that two preconditions must be established to move from a centrally planned economy to one in which decentralized decisions are guided by market prices. These preconditions are (a) the creation of strong, transferable private property rights and (b) the establishment of a sound monetary and financial system. The less-than-complete success of Soviet economic reform to date is arguably due to the absence of these preconditions. Like Bernholz, I will focus my remarks on the second precondition for the transition to a market economy: measures to establish monetary and financial stability. His paper touches on most of the main points that need to be made. I will simply bring certain aspects of the problem of financial reform even more sharply into focus.