Italian banking and exchanges

«The Economist», 17 aprile 1915, pp. 750-751

The report read by Signor Stringher, director-general of the Bank of Italy, at the shareholders’ meeting on March 31, 1915, covers one of the most momentous years in the history of the bank. As Signor Stringher says, the war compelled the Government to authorise the banks of issue – of which, as is well known, there are three in Italy, the Bank of Italy, the Bank of Naples, and the Bank of Sicily – to exceed the statutory limits to the issue of notes. By legislative Decrees of August 4^th and 13^th and November 23, 1914, these limits were on each occasion enlarged by a third, or from 660 to 1,320 millions lire for the Bank of Italy, from 200 to 400 for the Bank of Naples, from 48 to 96 for the Bank of Sicily. These amounts were to be covered by a metallic reserve of 40 per cent. Further, by a Decree of September 19, 1914, the limit of the advances (anticipazione) which the banks of issue must make to the State Exchequer were raised from 115 to 230 million lire for the Bank of Italy, from 30 to 60 for the Bank of Naples, from 10 to 20 for the Bank of Sicily. The banks are authorised to issue corresponding quantities of notes for the purpose of advancing them to the State, these issues to be covered by a reserve of a third.

By a Decree of August 18, 1914, the banks were obliged to advance to the State a sum now exceeding 300 millions lire for advances to savings banks and Monti di pietà (public pawn offices). These notes were to be guaranteed by deposit of Government stock, or guaranteed by State stocks or land mortgage credit debentures. A new legislative Decree of November 23, 1914, ordered that, of the said 300 millions, 50 were to be advanced to railway builders. Decrees of September 22^nd and November 23, 1914, enacted that the banks of issue must issue 100 million lire for advances to provinces and municipalities for the execution of public works, in relief to unemployed, and 400 million lire for advances to Cassa Depositi e Prestiti (a State Bank which administers the postal saving banks and various other public credit institutes). These issues to be guaranteed by credit certificates against the borrowers.

When we add that the Exchequer was authorised to increase its own State notes (ten and five lire) from 525 to 700 millions, and to issue a wholly new series of one and two lire notes (Buoni di Cassa), we get a total authorised increase in the issue of notes of various denominations of 1,803 million lire for the banks, plus some 200 millions for the direct State issue. The effect has proved less perilous than might have been anticipated. The State has, indeed, increased the issue of small notes of five and ten lire from 525 to 700 millions; but the one and two lire notes were printed, but not issued, as the panic among small people soon subsided, and the silver one and two lire pieces returned to circulations.

The banks contrived to avoid realising the authorisation of the Decrees. The total note issue, 2,199 million lire at June 30, 1914, including normal circulation, covered by 40 per cent, reserve and the additional circulation covered in full by gold, had by December 31, 1914, risen only to 2,936 million lire – i.e., an increase of but 737 million lire, well below the authorised 1,862 millions. The prudence with which the directors of our three banks of issue availed themselves of the authorisation to print new notes is highly creditable. The increase of 737 million lire in the note issue was, in substance, made wholly for the purpose of making advances to the State Exchequer. Discounts of private bills and advances rose, indeed; but debts at sight and deposits rose also by a corresponding sum, so that the three banks were enabled to increase by these means their discounts and advances (in million lire):

The fact was that the public took alarm in August and the following months, and, as far as the moratorium for banking deposits permitted, decreased their deposits in the ordinary banks and transferred them to the banks of issue, although the interest allowed by banks of issue was only 2 per cent, and afterwards 1.50 per cent. – i.e., below that allowed by other banks. The reason of the transfer was that the issue banks’ deposits were not liable to the moratorium, and continued even after August 1st to be callable at sight.

The foreign exchanges fluctuated considerably, especially in August, and but for the prudence of Signor Stringher and his colleagues, who refrained from the exorbitant over issues urged in various quarters, the note depreciation would certainly have been greater. From June the fluctuations of the rate of exchange on Paris have been as follows:

And in the first quarter of 1915 the mean rate of the exchange was as follows:

Italy is thus a loser against Paris, London, and New York, and a gainer toward Berlin and Vienna.

The dislocation of international trade seems to be the foremost cause of the dislocation of exchanges. The last five months of 1914 compare thus with the first seven (in million lire):

The international balance of payments was readjusted in the first seven months by the sums sent by emigrants and those spent by foreigners in Italy. In the last five months these sources of Italian credit against foreign bonds failed totally, and as our invisible imports (interest on debt held in foreign lands, freights, &c.) remained stationary, or even increased, the excess of payments to be made raised the exchanges against us in France, England (coal imports), and the United States (cereals and other imports). In the first quarter of 1915 the rate of exchanges was further raised against us, because of the high payments which Italy had to make for goods (especially cereals, horses, and various metals) imported from foreign lands (in million lire):

The exports have suffered less than the imports; but the import figures remain at a higher level than exports.

Trade with the principal foreign countries was as follows in the first two months of the year (000’s omitted, in lire). (See table at p. 104)

The rise in imports from Argentina and the United States is due to cereal imports. The exports to the belligerent countries have increased more or less. A glance at the detailed tables shows that increases were principally in cotton yarn and tissues, in vegetables, oranges and lemons, motor-cars, &c. The cotton and motor-car industries have been gainers from the war, while silk has suffered, though somewhat less in the last months.