The importance of banking as a service to commerce, industry and agriculture is nowhere more far reaching than in the socialist economic systems at present practised in eastern Europe. For political reasons the banks are not only given powers of control of credit, but have, by capitalist standards, unprecedented ability to be apprised of their customers’ business activities. The banks are the “Big Brothers” of business.

In socialist countries the banks are owned by the state and serve its needs. This control exercised by the banks involves administrative decisions as well as fiscal ones. The legal framework in which these decisions operate consists of two broad halves: administrative and civil law exist side by side to limit or enlarge the competence of business. The preponderance of one over the other is a good indicator of the relative strength or weakness of the political arguments which ultimately determine the freedom or otherwise of the economic activities of any country.

As in sovereign states the issue of banknotes and coins is entrusted to a central bank. The economic and legal principles relating to that activity do not differ from those acted upon by other issuing banks enjoying monopolistic positions. Like similarity exists with regard to exchange and currency controls exercised by governments over other countries’ money. However, the scope of control by a socialist country, and consequently that exercised by its central bank over the movement and availability of foreign currency within its borders or at the disposal of its citizens, is vast. There is an absolute prohibition on dealing with foreign currencies by individuals or companies, and their continued ownership is prevented by the requirement that all foreign currency must be offered for sale to the central bank. However, that sale is a matter of contract governed by the civil law. The negotiation of its terms, including the rates of exchange, are left to the parties themselves. In practice, this leaves the bank a wide discretion to regulate the amount of foreign currency over which the country’s firms or citizens may have means of disposition.

The unique ability of socialist banks to oversee their customers’ affairs lies in the requirement of administrative law that all companies, whether owned by the state or not, and other associations and co-operatives carrying on business must have a current account kept by the bank. (A similar duty lies on all authorities, such as local authorities, whose budgets are controlled in this way.) In these accounts is recorded the amount of monies, i.e. the value of goods or services, the company receives and disburses vis-à-vis other companies and the credit or debit balance of a company with its bankers. The Hungarian Civil Code, for instance, provides in three short paragraphs the bare bones of the first type of contract to keep an account.