Italian currency, exchanges, and trade balance

«The Economist», 22 Aprile 1916, pp. 739-740

Turin, April 2

The report read by Signor Stringher, director-general of the Bank of Italy, to the ordinary annual shareholders’ meeting is, as usual, very interesting, and a few figures may be extracted from it. The note issue since the European War is as follows (in million lire):

Signor Stringher did not commit himself to any definite theory as to the cause of the rise of the foreign exchanges, which, from 25.31 lire to a pound sterling in July, 1914, have risen to over 30 and even 32 lire, as is shown in the table, which traces how the Italian exchange has depreciated during the war from its par values:

But he did furnish some valuable facts, which may be useful in explaining the rise. Firstly, the actual rise in the sum issued, which, however, has been limited to the absolute necessities of the State, is inferior to that attained in most other belligérant States. Notes for trade purposes-viz., notes issued against bills and advances – increased up to May 31, 1915, the date of the war declaration against Austria, and was afterwards diminishing. This decrease was due to the decrease of the pre-war bills discounted by the ordinary banks. The pre-war bills are being regularly paid; and new bills are not forthcoming in the same measure, as cash payment methods are more usual than before the war. This means also that a part of the increase in the total issues, from 2,764.2 to 4,930.7 million lire, is not a real increase, but is due to a greater use of notes as against bills and other means of payment. A part of the new notes was also hoarded. Of the extent of hoarding an interesting proof was given in the fact that a great part of the subscriptions to the new 5 per cent, war loan – which, by the way, Signor Stringher announced will go up to 3,000 million lire, when the colonial and emigrants’ subscriptions will be closed, a truly noteworthy achievement – were paid cash down, without diminishing the bankers’ deposits in a corresponding measure. The Bank of Italy has received, for example, subscriptions to the new war loan for the sum of 900 million lire, of which the greater portion must have been paid cash down; but its deposits and other debts at sight diminished only from 718.7 to 618.5 million lire from December 31, 1915, to March 10, 1916. The experience of the other banks was much the same, so that one is obliged to draw the inference that a part of the subscriptions to the war loan was made in hoarded notes. Several hundred million lire must, therefore, be subtracted from the gross figure of 4,930.7 million lire to arrive at a true active circulating note issue.

Another point of great interest is the increase in the adverse balance of our foreign trade. These are the figures (in million lire) of the Italian foreign trade (goods, exclusive of bullion) for the last three years:

The real deficit was, however, greater than it would appear from the above figures. The 1915 figures are calculated on the basis of the 1914 prices. They will be corrected in due time; but at the present they are hardly representative of the real facts. As in 1915, the prices have greatly increased, and as the import prices are c.i.f., while export prices are f.o.b., and our merchant marine is unable to provide for all our outward, as well as to all our homeward, freights, the conclusion is that the adverse balance will probably exceed 1,115 million lire. The previous deficits were compensated, to upward of 1,000 million lire, by the remittances of Italian emigrants and foreign visitors. These two sources had, in a great measure, vanished in 1915; so that Italy had to provide for an increasing mass of imports at increased prices with diminished resources. The problem was solved by foreign loans. The Bank of Italy alone has sold, apart from State payments for war munitions and other public foreign purchases, upward of 750 million lire of foreign exchanges to the trade during 1915. Italy cannot use, for the sake of regulating foreign exchanges, the French and British device of selling foreign securities, for in recent years we have repurchased our Italian securities which foreign investors had bought in the period from 1861 to 1890; and our foreign investments were very small indeed, and mostly of enemy securities, which are at present unsalable. The only means of redressing the international balance of payment are 1) foreign loans, which should be forthcoming during the continuance of the war, and 2) restriction of consumption of foreign and internal goods. The rise of prices and the uncertainty of the future economic situation have done much to restrict consumption of luxuries, the imports of which are dwindling, but should be reduced to zero. Economy should be taught in Italy, as in England, to the classes which are profiting by the war.