Banking – Foreign Exchanges -The Lira’s External and Internal Value

«The Economist», 28 gennaio 1922, p. 129

Turin, January 22

No further important news is to hand as regards the Banca Italiana di Sconto affair. Two or three minor banks have closed their doors in consequence of the Banca’s moratorium, but the effect is hardly noticeable. It appears that several plans for the reconstruction of the Banca have been submitted to the Government for approval, but no definite decision has been arrived at. The Ilva iron and steel company shareholders, after inquiring into the loss of their capital, have come to the conclusion that it was inexpedient to prosecute past directors, and was better to accept a formal offer from the same directors of a payment of 30 million lire. Notwithstanding these and other bad incidents of the crisis, the impression is gaining ground that the worst is passing.

Some interesting financial data are contained in the new edition of “Prospettive Economiche”, by Professor Giorgio Mortara. Professor Mortara studies the relations between the internal and external buying power of the lira. At first sight the situation is not bettered, perhaps is yet worsening. Exchanges continue very much against Italy, as is seen from the following table of average monthly prices at the end of half-years:

If not quite at its worst, the lira remains gravely depreciated. The value of the lira in terms of the gold lira has moved thus: – December, 1914, 98 per cent.; 1915, 79 per cent.; 1916, 76 per cent.; 1917, 62 per cent.; 1918, 82 per cent.; 1919, 40 per cent.; 1920, 18 per cent.; 1921, 23 per cent. Fortunately, it seem that the two levels – internal and external – for the buying power of the paper lira are approximating. Thanks to the decrease of prices in the United States, the lira purchases more goods there than a year ago. Professor Mortara has calculated the weight which a given sum of money could acquire in 1913 and in September, 1921. Making 100 the weight acquired in both markets in 1913, with a given sum of lire, the same sum acquired in September, 1921, the following weights:

In Italy

Wheat                                    23

Indian corn                           20

Wine                                      15

Olive oil                                16

Butcher catde                      15

Butter                                    14

Raw wool                             23

Raw hemp                            19

Raw silk                                14

Sulphur                                 17

In the United States

Wheat                                    17

Indian corn                            25

Sugar                                     17

Petroleum                             23

Calfskins                               29

Coal                                       13

Raw wool                              22

Raw cotton                           14

Pig-iron                                 17

Steel                                       20

As far as these scattered data go, it seems that the buying power of the lira is reduced to a fifth part of 1913. And the reduction is not very much different in the two markets. If that is a true picture, equilibrium ought not to be a very distant hope, and when it is attained, the stabilisation of the foreign exchanges would no longer seem an impossible dream.