Italy. Dwindling gold reserves

«The Economist», 25 aprile 1936, pp. 181-182

The report of the Governor of the Bank of Italy is well worth reading because for the first time since the decree of October 20, 1935, which suspended the publication of all economic and financial statistics, it has been deemed useful to give the public authoritative statistical information on some aspects of the Italian situation. The statistics in the report are not so full as in past reports; but, as far as they go, they are most interesting. A comparison of the Bank’s position may be made as follows:

The total for December 31, 1935, does not include the gold offered by Italian subjects in December and January or the resources obtained from the compulsory sale to the Treasury of their foreign securities and credits. The amount of these two items is not disclosed; but as the Governor writes that «these sums, which together form a big special reserve, remain at the exclusive disposal of the State for meeting future needs in the interest of the country», we may infer both that they amount to several thousand million lire and that they are still (March 31) in the possession of the State. The total note circulation in Italy includes, besides Bank of Italy Notes, 10-lire State notes and silver, nickel and bronze coins:

The figures for December 31, 1935, and March 20, 1936, do not include 840 million lire of banknotes, since the State note circulation forms part of the Bank’s cash, which therefore must have been already included in the above totals. The present total circulation (Bank and State notes and silver, exclusive of nickel and bronze coins, which are an almost fixed amount), at about 16,500 million lire, is much lower than the two maxima of 22,000 and 21,500 millions reached at the end of 1920 and 1925 respectively. The Stock Exchanges were favourably impressed by the very moderate increase in the circulation.

Investors who were hesitating between industrial shares and Consols concluded that fears of inflation were unjustified. The present tone of the market is mediocre for industrials and very good for State securities. Treasury bonds are near to par. Joint stock companies are, in fact, contributing to the recovery in State securities, because in March and April most company accounts are closed and all excess or profits over 6 per cent. or past dividends must by law be invested in State securities.

Other interesting changes in the Bank of Italy’s situation are as follows:

The transformation of the Bank of Italy into a Central Bank will not apparently have far-reaching effects on its activities. Direct discounts by the Bank, which are now to be abolished, amounted only to 600 million lire, not a big proportion of a total of 4,897 millions. On the liabilities side the most important figures are the following:

The Treasury account is at a low level. On the other hands, as the price of 3.1/2 per cent. redeemable Government stock is rising, it is becoming more and more advantageous to convert it into 5 per cent. stock by paying the 15 lire supplement. The amount of conversion up to the present day is not known, but it is probably over 40,000 millions.