The Market under Control - Interest Rates in the Second Republic
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The principles of the functioning of the money market in the Second Polish Republic were subjected to far-reaching regulations which pertained both to legal aspects and the level of binding credit rates. The beginnings of the 'controlled market' can be found in the statute on usury (part of the reforms introduced by Wladyslaw Grabski), passed in 1924. This law, conceived as provisional, was supposed to overcome the 'high prices' of money, but it became a permanent element of the financial system, with consequences transcending the original intentions of its authors. The article analyses the configuration of interest rates in the years 1924-1938, and indicates the impact exerted by anti-usury legislation. The authoresses demonstrate the dependencies between the maximum rate, the interest of short-term credit, and the central bank rate. The fact that the government regulated the prices of credit must have obviously influenced the level of deposit rates. As the maximum rate was lowered, private banks began to aim at limiting competition for deposits; with this purpose in mind, in 1927 they created a cartel agreement about maximum deposit rates. In 1933 the government also introduced maximum deposit rates in communal savings banks and credit cooperatives. The existence of a maximum rate statute affected the way in which several banks, already functioning assumed shape: the Bank of Poland, private banks, state banks, and the non-bank market. The price of credit in each one of them was regulated, directly or indirectly, by the State. It is difficult to ascertain objectively whether the usury law proved to be more useful or detrimental. A discussion concerning those questions became intensified during the 1930s, when they were studied more widely by economists (e.g. by E. Taylor, M. Breit, S. Buczkowski, T. Solowij). A complete assessment of the correctness of the theses formulated by them calls for further economic research.
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