Banking reform is one of the crucial components of a successful programme of transition to the market. In Hungary, the banking system was highly centralised and based on supporting the central planning system from about 1950, though some decentralisation was undertaken well before other countries in Eastern Europe. Commercial banks were split off from the central bank in 1987 and several joint ventures, mainly private banks were established. The paper analyses the main features of reforms in Hungary''s banking system, and the conduct of monetary policy in a rapidly evolving banking environment. The important interactions between economic reform, politics and the banking system are also examined, including the impact of such phenomena as ''queuing'' (unplanned and involuntary inter-enterprise credits) and discussion of recent banking legislation. The latter includes measures to make the central bank more independent of the government
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