Bank of Italy Report – The New Loan – Money Market

«The Economist», 14 aprile 1917, p. 658

Turin, April 4

The report of Signor Stringher, director-general of the Bank of Italy, to his shareholders contains much interesting matter. The most important financial operations of the Bank of Italy were, of course, for State account. After the War loan of January, 1916, which gave 2,100 millions lire of fresh money, comprising 300 millions subscribed by the banking corporations of issue, the bank issued in June and October Treasury bonds for 3 and 5 years, at 5 per cent., which produced 1,700 millions lire. The Treasury bills increased during the year by over 2,700 millions lire, and the paper notes increased also by 700 millions lire. The total banking and State note issue increased from 2,682 millions lire on July 20, 1914, to 6,330 millions lire on December 30, 1916.

The last War loan, in 5 per cent. Consols, issued at 90, had given, up to today, over 3,610 millions lire, entirely sold to the public, the banking corporation of issue having also disposed to the public of all the guaranteed sum. Of the said 3,610 millions, 2,490 millions were of fresh money, 104 millions of Exchequer bills, 427 millions of five-years 4 per cent, bonds, 396 millions of three and five years 5 per cent, bonds, and 79 millions of foreign State and railway securities (rentes and bonds). Foreign securities in possession of Italian capitalists were of not very great amount – Signor Stringher values them at a maximum figure of 800 millions lire, comprising the securities of enemy States. The subscription list for the War loan will remain open in the Erytrean and Benedir colonies and in the foreign countries oversea up to May 31. Up to date the foreign and colonial subscriptions have given 63 millions lire, which have to be added to the said 3,610 millions lire.

The gold held by the three banks of issue – Bank of Italy, Bank of Naples, and Bank of Sicily – and by the State Exchequer decreased between May, 1915, and February, 1917, by 490 millions lire.

An interesting feature of the money market in Italy has been the abundance of money for day-to-day loans, short bills, and Stock Exchange loans. Good commercial paper was scarce, and the discount operations of the Bank of Italy decreased in number from 1,880,301 in 1915 to 737,561 in 1916, and in amount from 3,296 to 1,817 millions lire. While the official bank rate was 5 1/2 and afterwards 5 per cent., the Bank of Italy was obliged to diminish the rate to 4.50 per cent, in the 29.69 per cent., and to 4 per cent, in the 5.29 per cent, of the discount operations. Ordinary banks did go even lower, as the dominant rate in the free market was 4 1/2 and 4 per cent. Signor Stringher explains the scarcity of good bills offered to the banks for discount by the decrease of the purely private transactions and the increase of the war transactions of the State, which pays cash in paper notes. The increased paper circulation floods the market and forces the rate for short bills to a low figure. The Bank of Italy has made a vigorous effort to popularise the use of cheques with a view to restricting the note issue. The cheques issued by the bank during the past year were 3,002,938 in number, for a sum of 16,920 millions lire, with an increase of 4,368 millions lire over the year 1915. The mean circulation of the bank cheques was 3,326 millions lire, with a mean life of seven days.