Exchange Payments – Bank of Italy – Prices -Foreign Trade – Bourses

«The Economist», 29 marzo 1930, pp. 706-707

Turin, March 13

Exchequer payments on account of effective expenditure exceeded receipts by 1,492.6 million lire in January, chiefly owing to the fact that payment of interest on Consols and other State debts was made this year in January, when it fell due, instead of being made in advance in December. As the result, cash in the Treasury, which had diminished from 2,352 million lire at June 30, 1929, to 2,241.2 at December 31, decreased further to 1,208.4 at January 31, 1930, while Treasury floating debts rose by 459.8 million lire. Usually the situation of the Treasury improves in spring, but the closest supervision will be necessary if the growth in expenditure, against which Treasury and parliamentary Budget committees alike are expostulating, is to be checked.

If the Treasury situation is somewhat strained, the position of the Bank of Italy continues to be easy. Comparing the figures at December 31, 1927 (the first balance sheet published after stabilisation), March 31, 1928 (the time of maximum total reserves), December 31, 1929 (when discounts and advances were at their maximum) and February 20, 1930 (last balance sheet published), we obtain the following table (in million lire):

The outstanding fact is the decrease in the gold exchange reserves from the maximum of 7,855.6 million lire at March 31, 1928, to 4,790.4 million at February 20, 1930, a decrease only partly counterbalanced by the increase in the gold proper from 4,660.5 to 5,189.8 millions, leaving a net decrease in the total reserve of 2,535.9 million lire. Against this, there is, however, as a set-off, the decrease, between the same dates, of 1,548 million lire in the notes issued and of 1,453.4 million lire in the private deposits. Nor are there symptoms of credit inflation, as discounts, advances and day-to-day loans, after going up at the end of December, fell sharply again. Treasury accounts are the most erratic items in the balance sheet; their variations seem to follow those of the discounts, etc., item. Nobody knows anything about “other” debtors and creditors; an hypothesis put forward in Signor Mazzucchelli’s monthly reviews in Rivista Bancaria (perhaps the most eagerly scanned financial article in Italy) being that “other” debtors includes a secondary or hidden gold exchange reserve.

These figures suggest that the deflationist policy is ruthlessly persisted in. One result at least has been reached: the decrease of wholesale prices. According to Professor Bachi the average price index for 49 imported commodities decreased from 631.8 for 1926 to 492 for 1927, to 454 for 1928, to 454.4 for 1929 and 453.3 for January, 1930. The indices for 95 commodities produced and consumed in the country were, respectively, 595.8, 505.7 , 477.6, 447.9 and 416, and those for 33 exported commodities: 550.3, 462.5, 438.5, 406.6 and 352.7. Thus wholesale prices are falling rapidly; so rapidly that in February gold prices (on the 1913 basis), according to the Milan Provincial Economic Council, were only 120.8 against 122 in England, 129.8 in Germany and 140.9 in the U.S.A. Export prices are, moreover, much lower than import and internal prices, a circumstance which should pave the way to an increase of exports. Exports, indeed, in 1929 were 329.8 million lire higher than in 1928, and imports 620.4 million lire lower, so that there was a decrease in the trade import excess of 950 million lire. But as the cereal import item alone decreased by 1,413 million lire, it appears that other items contributed an increase in the import balance of 463 million lire. In consequence, industrialists and merchants are complaining that lower prices are not bringing the usual compensation of increased exports. Unemployment in agriculture rose from 89,804 at the end of October, 1929, to 145,342 at the end of January, 1930, but in the preceding year the increase was greater – from 75,473 to 170,444. In all other branches of employment (industry, trade, etc.) unemployment rose from 207,578 at the end of October, 1929, to 320,889 at the end of January, 1930, against an increase from 206.906 to 291,445 in the preceding year. Employment appears thus to be improving in agriculture and slackening in industry and trade.

The announcement by the Bank of Italy of the reduction of the official rate of discount from 7 to 6 1/2 per cent, on March 1st did not change the mood of the market. The Bourses were not even roused by the news of the fusion of two of the Big Four banks, the Credito Italiano and the Banca Nazionale di Credito. The fusion aims at concentrating in the Credito Italiano all ordinary deposit and discount operations, leaving to a subsidiary body, called the Banca Nazionale di Credito, the function of long-term financing of industry.

The strong position of the Bank of Italy is well illustrated by the announcement that yesterday the Finance Minister and the Governor of the Bank of Italy had agreed to raise the embargo on gold and to abolish all restrictions on purchases and sales of foreign exchange. Old restrictions were lately enforced with much leniency; but their legal persistence was unfavourable to import of capital, as foreigners feared that difficulties might be placed in the way of re-export. Exemptions from income tax for foreign loans and debentures issued in foreign countries were at the same time extended to the end of 1933. The financial Press hopes that these measures will be the prelude to a new impetus to industry, which needs more capital than can be provided for by internal savings.