Decreasing Note Issues and Lira Depreciation -Trade Balance – Agricultural Production

«The Economist», 5 novembre 1921, p. 816

Turin, October 27

A recent official statement shows how the note issue in Italy has decreased this year. The following are the most up-to-date figures:

To the above figures there are to be added two items: 1,867 million lire of State notes (currency notes of 5 and 10 lire) and 277 million lire of small 1 and 2 lire notes. The last account for the State notes relates to April 30, 1921. The total issued is less by almost two billion lire than at December 31, 1920, and the decrease is wholly due to issues on State account, industry and trade being apparently relying in increasing ratio on the bank of issue’s aid. Perhaps the economic crisis and the difficulty of sale are forcing companies and private business men to search for banking accommodations; but it is probable that under the disguide of commercial circulation are comprised discounts of Exchequer bills or other loans on State paper.

Notwithstanding the reduction of notes issued, foreign exchanges go up by leaps and bounds. Sterling, which at June stood at 73.51 lire, had risen to 84.30 at July 31st, to 93.55 at September 30th, and is today oscillating about the 100 limit. Dollars went up from 18 to above 25 lire. We are approximating to the maximum of 109 and 30 lire respectively, reached about January and February, 1921. The figures for international trade would not seem to warrant such an evil course, as they are undoubtedly better than last year. For the first five months of the year they are as follows:

The adverse balance is much greater than in the last pre-war year, but the lira has in the meantime greatly depreciated. As for the 1920 and 1921 comparison, it is to be noted that the 1920 and 1921 are, owing to technical reasons, calculated on the basis of 1919 official values. As in 1920 the real values were much higher than the official values, the real adverse balancemust be taken as notably higher than the apparent one. In 1921, however, the experience was inverted; the official 1919 values are probably alittle higher than the real values, so that the real adverse balance may prove to be less than the official figure. In short, it is extremely probable that the present adverse balance is less than in 1920, and so the figures do not provide any reason for the foreign exchanges going from bad to worse.

Perhaps a partial explanation of the depreciation of lira exchange may be found, on the lines of the quantitative theory of money, in the fact that the same or slightly less quantity of paper money is performing less services. The economic crisis has diminished the wages paid and the transactions done with the aid of money. And so the present total of 17,878 million lire (exclusive of 1, 2, 5, and 10 lire currency notes) may be a more redundant quantity than the 19,731 million lire of December 31, 1920.

Probably this theory is true, as far as relates to commercial and industrial activity. But in agriculture the latest statistics published by the Department of Agriculture seem to point to better yields:

With the conspicuous exception of wine, all other agricultural products are doing better than in 1920, and the figures of 1921 are a symptom of a return to the prewar normal conditions. If we reflect, moreover, on the deep-rooted distrust of the farmers toward Government requisitions and maximum prices, we are led to believe that the figures for 1921 are more understated than the 1912-1913 figures, when no one dreamed that statistical reports would be utilised against the agricultural interest. It does not appear, therefore, that paper money is very much less in request than a year ago for economic transactions. Perhaps, in common with all Europe, Italy is suffering from the widespread fear that the State will not be able to restore theequilibrium in its Budget, and new paper issues will be in future inevitable. If so, only a severe policy of economy and retrenchment will at length reverse the present downward tendency of the lira.