Moldova's banking sector will play a key role in the country's transition from a managed economy to a market economy. The banking system was reformed in 1991. The National Bank of Moldova (NBM, the central bank) is charged with implementing monetary policy and issuing currency. State banks include the State Savings Bank, with 1,000 branches, and the Bank for Foreign Economic Exchange. Holdovers from the old Soviet system include three regional banks, which have been changed to joint-stock companies whose shares are owned by state enterprises. There are 20 commercial banks in the country with licenses to perform international transactions. The currency unit is the leu, introduced in late November 1993.
November 1993 was a turning point for Moldova's financial stability. The NBM became a fully independent central bank with its own administrative council, and was no longer required to finance industrial and agricultural funding shortfalls. As the leu was introduced, the NBM started phasing out credit emissions. As of January 1994, the NBM became fully responsible for monetary policy.
The bank has two policy instruments: reserve requirements which were raised progressively throughout 1994, and interest rates. The discount rate reached a peak of 377% in February 1994, and was kept high despite the subsequent dramatic fall in inflation. As of 2001, the money market rate was 11%.
The banking system comprises four former Soviet banks, Agroindbank, Molindconbank, Moldotsbank, and the Savings Bank, as well as 20 commercial banks at the end of 2002. As in many other republics of the former Soviet Union, licensing procedures in the early 1990s were quite lax, with the result that the country is now overbanked, with too many small institutions, and a relatively high level of non-performing loans (11% of total commercial bank balance sheets as of mid-1996).
Moldova's 15 voucher funds have played an important role in the privatization program. Most citizens have opted to invest their vouchers in the funds rather than directly acquire shares in newly privatized companies.
The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $194.3 million. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds—was $377.1 million. The money market rate, the rate at which financial institutions lend to one another in the short term, was 11%.
The Chis¸inau-based Moldovan Stock Exchange opened for business in June 1995. Trading is electronic and is based on an order-driven system. As of mid-1996, it listed 11 shares. The most actively traded shares are Cupicini Canning Factory and Banea de Economii. As of 1998, there were 15 investment funds and eight trust companies. A commodities exchange is planned. The government began auctioning 91-day treasury bills in 1995 and introduced 730-day treasury bills in 1997.
Foreign currency reserves at the NBM rose by one-third in 1996, from $226.7 million at end-1995 to $304.1 million. This is to be explained by the substantial inflows of funds from multilateral institutions, notably, the World Bank and the European Bank for Reconstruction and Development. In December 1996, Moldova made its debut in the international bond market with a $30 million floating rate note issued as a private placement through Merrill Lynch. The bond has a call option effective in two years time.