Bank of Italy Report – Foreign Trade Balance -Fluctuations of Note Issues and Discounts – Gold Reserves

«The Economist», 12 maggio 1923, pp. 999-1000

Turin, May 1

From the report of Signor Stringher to the last ordinary meeting of the shareholders of the Bank of Italy one can glean some interesting figures on commerce, banking, and finance in Italy. On the adverse foreign trade balance, which may be calculated at 6,000 million lire yearly, Signor Stringher remarks that Italy can only compensate it in the usual old way of remittances of Italian emigrants and expenses of foreign travellers. These are difficult to gauge, but remittances from emigrants through the agency of the Bank of Naples were in 1920 980,756,000 lire, in 1921 711,549,000 lire, and in 1922 525,688,000 lire. The Bank of Naples handles about a quarter of the savings of the emigrants, so that it may be calculated that remittances contribute over 2,000 millions to alleviate the annual indebtedness of Italy on the score of foreign trade.

The note issue at the end of the four last half-years was as follows (in millions of lire):

The maximum was reached at the end of 1921, in consequence of the collapse of the Banca Italiana di Sconto; and it is easy to see that the banking issues on account of the State were not responsible for the rise, which was wholly limited to the issues on account of trade. This unfortunate affair retarded for a year a decrease which should have taken place in the note circulation. The losses will be borne ultimately by the taxpayers, as the Government, by a royal decree of January 2, 1923, agreed that three-fourths of the tax on notes issued above a certain limit and not covered by gold, instead of being paid into the Exchequer, should be paid from January 1, 1922, to December 31, 1925, into a special fund, which eventually will cover the losses incurred by the banks of issues on Banca di Sconto liquidation. An indication of the pressure exercised by these extraordinary rediscounts of banking bills may be gathered from the fact that the Consortium for industrial-securities, largely an offspring of the banks of issues, which rediscounts long-dated bills of industry and trade, increased its operations from 1,496 million lire in 1921 to 2,254 millions in 1922, and closed the past year with the big sum of 767 million lire in loans and discounts; to which were to be added 898 million lire of a special section of this same Consortium created for the rediscount of banking bills.

The bills discounted by the Bank of Italy increased, therefore, very largely. The following figures of such bills may give an idea of the extent to which bankers and traders had recourse to the aid of our first bank of issue (millions of lire):

The item of bills discounted by the Bank of Italy, which increased between November 20, 1921, and April, 1922, by the huge sum of 1,231 million lire, has fluctuated since; but at the end of 1922 was at its highest point. It is to be hoped that the decrease experienced in the New Year may not prove a merely seasonal movement. Loans on securities have done better; beginning at 3,669.5 million lire at January 31, 1922, they decreased, almost continuously, to 1,955.2 million lire at November 30, 1922, only to increase to 2,533 millions at December 31, 1922, owing to the usual end-of-the-year necessities.

While the official discount rate remained at 6 per cent, until July 10th, and was reduced to 5V2 after that date, the average effective rate of discount applied was 5.55 per cent, in 1922, against 5.83 per cent, in 1921 and 5.69 in 1920.

A great deal of interest was aroused in Italy by Signor Stringher’s utterance about gold reserves and the war transfer of gold to England. It appears that the reserves of the Bank of Italy varied thus (in millions of lire):

It was always the custom of the Bank of Italy to hold a part of its gold reserve under the form of gold credits on first-rate foreign banks. It was a sort of informal gold exchange system, and was useful, in old times, for the regulation of exchanges. But the item of “deposit of gold certificates” has to-day a wholly different signification. This sum of 381.4 million lire is a part of a greater sum of 562.3 million lire which the Italian Government deposited in London, at the request of British Government, for the sake of pegging the sterling exchanges in the common interest of the Allies. This is the sum which the British Premier proposed at Paris should pass to the British Treasury in part compensation of the cancellation of the Italian debt to Great Britain. We do not know in Italy if this same gold is counted somewhere in foreign gold reserve. If so, it would be necessary not to count it twice in figuring world gold reserves.