Istituto mobiliare – Bank of Italy – Trade

«The Economist», 26 dicembre 1931, p. 1232

Turin, December 14

On December 5^th the first meeting took place of the promoters of the new Istituto Mobiliare Italiano, all of them representatives of public departments, public bodies and savings banks. Subscriptions to capital amounted to 550 million lire, instead of the statutory 500 millions. Directors will not receive fees for their work, and will not contract any personal liability in consequence of their administration. They will only be responsible for the execution of their mandate, which probably means that directors, being mostly public servants or nominees of public bodies, will be responsible for the faithful carrying out of orders of their constituent bodies. At the subsequent first meeting of the board of directors, Signor Mussolini pointed out that the aim of the Institute is not the salvage of worthless organisations, but aid to sound economic firms which have been shaken by the crisis. No catastrophic revolution in the economic structure of Italian companies is contemplated. Senator Mayer, the chairman, enlarged on this topic, insisting that nobody aimed at introducing, under the cloak of the Institute, socialisation of industry. The Institute will not accept responsibility for transactions or mistakes prior to its birth, and is to maintain absolute independence of private interests.

These statements were aimed clearly at reassuring public opinion against misgivings about excessive State intervention in business life and the possibility of the Institute’s taking excessive risks in its long-term operations. The Banca Commerciale seems thus to have been only an incident in promoting the creation of a body whose scope is much larger. From a passing hint of Senator Mayer it may be supposed that the State will give its guarantee to all debentures issued by the Institute. It would have been difficult, indeed, to issue successfully two sorts of debentures, as the non-guaranteed series would have been deemed by the public as of inferior standing and not so desirable as the guaranteed. Senator Mayer hopes at the same time that the Institute will never be obliged to call upon the State to make good its guarantee.

The changes in the balance sheet items of the Bank of Italy after the suspension of the gold standard in England are important, but limited to gold reserve and discounts and advances. The appreciable increase between September 20th and November 30th of the gold reserve by 218.3 million lire has been offset by the diminution of the foreign bills and securities reserve by about one milliard lire. The resulting decrease in the total reserve is 746.7 million lire, not an excessive price to pay for the maintenance of the stability of the lira. Speculations are keen as to the loss sustained by the Bank of Italy on account of sterling reserves held on September 20* and as to the amount of sterling bills sold in the meantime but the Bank is keeping its own counsel.

The counterpart of the decrease in the gold reserve is not to be sought in a decrease of current liabilities, as the total of notes issued, plus State and private deposits, including all categories of State current accounts, is unchanged. The proceeds from gold reserve sales were used in the internal market, increasing discounts and advances by 892.4 million lire. As, however, during the past year, between the same dates, gold reserves also decreased by 502.5 and discounts and advances increased by 607 million lire, it may be that the increase of internal discounts and the reduction of foreign assets are due to ordinary seasonal influences. It looks as though the circulation had reached bottom, and the situation requires most careful handling of credit policy by the Central Bank, especially as the ordinary banks seem to be more dependent on the Bank of Italy than they used to be. If the note issues are to be kept at the present level the influence of the Central Bank should therefore be exercised in favour of credit restriction. The task is not at present very difficult, as the financial requirements of the market are not heavy.

The wheat quota system established by a decree of June 30, 1931, providing that wheat flour should contain only 5 per cent, of foreign wheat, raised the internal wheat price, which rose from 750 to about 1,000 lire per ton. A new decree of October 22nd therefore increased the permitted quota of foreign wheat from 5 to 25 per cent. The Italian Press is making no fuss about the new British Customs duties on imports. According to Italian statistics imports from Great Britain were 1,821.2 million lire in 1927, 1,777.2 in 1928, 2,089.6 in 1929, and 1,673.3 in 1930; exports to Great Britain 1,527.6 in 1927, 1,399.1 in 1928, 1,459.6 in 1929, and 1,185.4 in 1930. For the first seven months of 1931 imports were 761.7 million lire and exports 725.3 million lire. The most important item hit by the new British duties is leather gloves, of which 56 million lire worth were exported to Great Britain for the first eight months of the year.

Nobody suggests that contraction of foreign trade is good; but some consolation is drawn from the fact that imports decreased in the first ten months from 14.9 in 1930 to 9.9 billion lire in 1931, or 31 per cent.; while exports decreased only from 10.1 to 8.2 billion lire, or 18 per cent. As the average price of exported goods was reduced from 19.7 per cent., it appears that we were able to sell only a slightly increased quantity. The trade deficit decreased, therefore, from 5.5 billion lire in the first ten months of 1929 to 4.3 in the corresponding period of 1930 and 1.7 in 1931. As the invisible exports, however, were certainly not entirely wiped out, it appears as though the international current payments account will balance in 1931. If, therefore, the gold reserves are declining – the decrease in total reserves was from 9,624.3 million lire at December 31, 1930, to 7,987.5 at November 30,1931 – the causes are to be sought elsewhere. That exporters are depositing in foreign banks part of the sums due to them is improbable, as their need of funds is great and their unfortunate experience with sterling assets has made everybody shy of foreign investments. A few currents of capital export toward France and Switzerland persist; but they are subterranean and very slight, as foreign exchange regulations are strict and strictly enforced. Exchange is sold only on presentation of invoices and of customers’ or other documents stating that the goods to be paid for have been already received. The most likely explanation is that foreign deposits have been recalled, forcing the Central Bank to sell exchange against discount of internal papers.