Abstract

BANKING AND CENTRAL BANKING IN PRE-WWII GREECE:MONEY AND CURRENCY DEVELOPMENTS

Sophia Lazaretou

Bank of Greece

ABSTRACT

This paper aims to trace the history of central banking in pre-WWII Greece. To this end, we first study the country’s financial structure and its process of financial development. Several indices of financial development have been assessed and their evolvement has been studied. The country’s financial development had passed through different stages. Financial depth had increased in the turn of the 19th century and expanded further in the 1920s. However, on the basis of behavioural indices, banks were shown to be poorly asset-liability managed. They were also suffered by capital adequacy and were highly leveraged. The analysis of the composition of money supply and its long run behaviour suggests that monetary base variations were the proximate determinants of money supply movements, whereas money multiplier had a minimum impact. Central banking in pre-WWII Greece is viewed with regard to the monetary policy strategy, the monetary policy implementation framework and state interventions. The balance sheet of the Bank of Greece reveals an excessive focus on the chosen monetary policy strategy of a currency peg. Domestic credit was controlled via liquidity-providing standing facilities, either discounts or advances. Moreover, Bank’s considerable involvement in government re-financing might indicate that state interventions were considerable.

Keywords: Central banking; Financial intermediation; Money

JEL classification: E500; N230

Acknowledgements: I am grateful for thoughtful comments from Michael Bordo, Erik Buyst, Ivo Maes and Zarko Lazarevic. I also wish to thank Panayotis Kapopoulos and George Kostelenos for stimulating discussions. The views expressed in this paper are those of the author and do not necessarily reflect those of the Bank of Greece. Any errors remain my responsibility.

Correspondence:

Sophia Lazaretou
Bank of Greece, Economic Research Department
21 E. Venizelos Ave.
102 50 Athens, Greece
e-mail: slazaretou@bankofgreece.gr