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Abstract
Building sound financial systems is fundamental to developing viable market economies where central planning once prevailed. In a market economy, it is the financial system that channels savings among alternative uses, either through competing intermediaries or in markets, guiding the composition of economic activity and its rate of expansion. Accompanying this provision of financing are various forms of control over the use of capital—the voting rights of shareholders, restrictive covenants in lending agreements, and shifts in control associated with bankruptcy. Within the discipline thereby imposed, a market economy permits a large degree of decentralization. The transformation from a centrally planned to a market economy thus entails, in large measure, a shift from bureaucratic administration to financial control.
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