Free Enterprise and Central Banking in Formerly Communist Countries

The economic difficulties manifest in communist countries have encouraged a desire in many of them to move toward a market economy. This paper surveys specific reasons for the breakdown of centrally planned economies and discusses the difficulties of making the transition to a market economy. A general theme is that a market economy requires the limitation of government intervention in the marketplace. This theme is illustrated by a discussion of the central bank. The final part of the paper advances the proposal that formerly communist countries eliminate their central banks by adopting the currency of a large western country with a stable currency. This proposal is discussed in the context of the German monetary union, which will eliminate the East German central bank