Italy. Foreign investments and the gold reserves

«The Economist», 20 aprile 1935, p. 903

ITALY FOREIGN INVESTMENTS AND THE GOLD RESERVE A few points may be usefully picked out of the Bank of Italy’s report, which is, as usual, the most important financial document of the year. The report explodes the notion widely held in industrial and commercial circles that the reduction of gold reserves between December 31, 1927, and December 10, 1934, was due to an import surplus. The data collected by the Bank of Italy are such as to authorise the conclusion that the halving of the gold reserves from 12,500 million to less than 6,000 million lire «was mainly due to capital investments by Italians in foreign countries, and to purchase, also by Italians, of foreign securities and of Italian securities issued in foreign countries». «It may be added», says the Report, «that, were it not for the said important foreign investments, the balance of payments would have been active for several years, with a consequent increase of gold reserves».

The stream of Italian capital seeking investment abroad is said by the report to be due to the excess of the rate of interest prevailing abroad over the internal rate, and also to the cheapness of sterling and dollar securities purchasable at the current rate of exchange. In some measure, therefore, the outflow of capital is due to the current cheap money policy. The recent reduction of the rate of discount from 4 per cent. to 3.50 per cent. is accordingly criticised in some quarters. Industrial securities, which have been gently rising for several years, have shot up in the last few weeks. And despite measures taken by the Treasury to check a speculative movement, the rise is continuing.

In 1934 the import surplus, which was previously offset by invisible exports, became, according to the Bank’s report, a decisive factor in the balance of payments owing to reductions in invisible exports. A further proof of the fundamental truth that from 1928 to 1933 the commercial trade deficit was really not such a big thing as many supposed, and that the international payments account was on the whole evenly balanced, is afforded by the further statement made in the report that the Consortium for Industrial Loans (a body created by the Bank of Italy to make direct advances to industry) was able to reduce a rediscount previously obtained from the Bank for International Settlements from 280 million lire on December 31, 1933, to next to nothing during 1934. It was only at the end of December, 1934, that the Consortium was formed to raise its rediscount to 311 millions. Now at long last, however, the import surplus, owing to the drying up of invisible exports, has become of decisive importance. Importers must now rely almost exclusively on the Bank of Italy’s resources. From December 10, 1934, to February 28, 1935, the Bank sold to importers 2,000 million lire of foreign exchanges, partly drawn from the monopolised yield of exports and partly «on an important scale» from credits held by banks and commercial firms in foreign countries and sold to the Bank in virtue of the December 8, 1934 decree for the «mobilisation» of foreign investments.

THE NATIONAL SAVINGS: The accumulation of savings is not slowing down. Senator Scialoja has printed in the report of the Senate Finance Commission on the 1932-33 accounts a very interesting table showing increases of savings between December 31, 1930, and September 30, 1934. In these four years and nine months saving deposits increased by 10,409 million lire; issues of new securities totalled 26,197 millions; life and social insurance premiums paid to insurance companies and bodies amounted to 3,863 millions. The total is formidable. To these savings, which probably cannot be less than 6,000 million lire annually, one must add direct investments in new houses and new industrial equipment, and sums put to reserve by joint stock companies. A rough guess would point to a total of savings of no less than 10,000 million lire annually, which looks truly remarkable against a national income which Senator Scialoja in the same report estimates at 63,000 million lire. Clearly, the Italian national income must be higher than that figure; for Italians would not be able to pay more than 20,000 millions net in annual taxation and also save 10,000 millions. A country of small men – 9,600,000 land-tax-paying units among others – such as Italy, has vast invisible resources, of which statisticians cannot easily take cognisance. These millions of small men save in all times, good and bad.

New issues were distributed between December, 1930, and September, 1934, as follows (in millions of lire):

Savers clearly prefer State or State-guaranteed issues. Some of the biggest loans, even in the second table, are issued by public bodies.