Bank of Italy – Paper Issues – Foreign Trade and Foreign Exchanges

«The Economist», 13 aprile 1918, p. 602

Turin, March 29

Signor Stringher read yesterday to the shareholders of the Bank of Italy his usual report, which is probably the most important financial document of the year in our country. The balance-sheet closes in a way highly satisfactory to the shareholders and to the Government, which participates in the net profits of the banks of issue. The gross profits were 112,000,000 lire, against 79,100,000 lire in 1916; the expenses were 56,900,000 lire, against 39,200,000 lire. The net profits amounted to 55,100,000 lire (1916, 43,900,000 lire), which are reduced to 51,600,000 lire after various statutory deductions. Of the said sum 14,400,000 lire were allotted to shareholders (8 per cent, on the paid capital), 15,900,000 lire to the extraordinary reserve, and 21,000,000 lire to the State.

The high profits of the year 1917 were in part due to the increased issue of bank notes, which averaged 4,659 million lire during 1917, against 3,294 millions during 1916. But the increment was higher if we compare the end of 1917 with the end of 1915 and with July, 1914, and if we include the issues of the other two banks of issue and of the State notes. The figures work out as follow:

While the note issues increased the gold reserve decreased; the gold held in the Bank of Italy vaults decreased from 1,118,200,000 lire at the end of 1914 to 835,900,000 lire at the end of 1917; the silver from 107,900,000 lire to 87,400,000 lire. The certificates of credit upon foreign places increased, however, from 23,600,000 lire to 447,700,000 lire. Italy was, previously to war, a paper currency country, and gold was not seen in circulation. It is gratifying to know that the Bank of Italy has only reduced its gold stock from 1,118,200,000 lire to 835,900,000 lire (-282,300,000 lire), while sending presumably over 400 millions gold to foreign allied places, and thus aiding the financing of the war.

The controversy as to the causes of the fall of the lira has subsided of late. It is acknowledged by all leading authorities, including Signor Stringher, that the principal cause has been the unavoidable increase of the paper issues. The price to be paid in Italian lire for the most important foreign exchanges were as follows (average of the month):

If the fall of the lira is due mainly to the abundance of new paper money issued during the war, the prevalent impression is that its fluctuations – which were most violent between October, 1917, and February, 1918 – were due to speculation and irregularity in the balancing of international payments. Signor Stringher publishes a very interesting table on the Italian foreign trade, in which the 1917 figures were adjusted so as to correspond to increased prices of goods:

How the gigantic deficit was liquidated is not wholly clear. In an interesting table published by Signor Nitti, Minister of the Treasury, the loans of the Allies were given as of 1,270 million paper lire in 1915 and 2,900 million paper lire in 1916. Signor Stringher adds the further figure of 5,400 million gold lire as the total sum of loans by Allies in 1917, corresponding perhaps to 8,000 million paper lire. It would appear that in 1917 the deficit was nearly covered by Allies’ loans.