The Foreign Exchanges and the Fourth War Loan

«The Economist», 10 marzo 1917, pp. 473-474

Turin, February 20

One object of the new Italian War Loan in 5 per cent. Consols is to redress the unfavourable balance of international exchanges. The pound sterling at 34-35 lire, the French franc at 125 per cent., the Swiss franc at 145 per cent., the American dollar at 7.30 lire, the Argentine peso at 3.15 lire are eloquent of the need, and every effort is required to counteract the downward tendency of the value of the lira.

The best method of stabilising the currency is to decrease the circulation of paper; but in the present war the Treasury Ministers must consider themselves very fortunate if they succeed in restricting to small dimensions the increase of the paper issues. In this task Signor Carcano, aided by Signor Stringher, director-general of the Bank of Italy, has a good record. On a total of 16,060 million lire of new debts created between August 1, 1914, and December 31, 1916, the Bank and State notes debt reaches 3,272 million lire. The rest was raised by long-dated bonds and short-dated bonds and Exchequer bills, issued at home and abroad. As the pre-war paper issues reached 2,700 millions, the increase was noteworthy, but inferior to the increase of most other belligerents.

The exchange crisis was aggravated by the great decrease of remittances by Italian emigrants abroad to their families and by foreign travellers in Italy. In peace times the surplus of imports (1913, 3,645 million lire) over exports (1913, 2,511 million lire) was roughly balanced by these remittances. In 1914 and the following years the balance of trade worked as follows (in million lire):

The advances of the British Government, and some small loans in the United States, have aided the balancing of our international indebtedness, but the difficulties of making the two ends meet are undoubtedly great.

The issue of our fourth loan has offered to the Government the opportunity of inviting the capitalist to give to the Treasury the foreign securities and the gold which they happen to possess. The scheme works as follows:

1. Certain foreign securities are accepted in payment of the new Consols; thus following the English and French policy. The quantity held in Italy is greatly inferior to that held in both these countries. Years ago Signor Stringher guessed at 24 million lire the sum received by Italians as yearly dividends of foreign securities in 1909. Today the sum is undoubtedly increased, and it is probable that the value of foreign securities held by Italians is well over 900 million lire, and perhaps reaches 1,000 million lire. Unfortunately, a notable part are Austrian, German, and Turkish bonds and shares, which are unsaleable. But there remains several hundred million lire of French, Spanish, Swiss, and especially Argentine, Uruguayan, and other South American securities, in which our former emigrants had invested their savings.

The list published by the Government specifies 19 sterling securities.

1. Gold is accepted in payment of the new Consols, at the fixed rate of 130 lire for every 100 f., 32.70 lire for every pound sterling, and 6.70 lire for every U.S. dollar. There is not much gold privately held in Italy, but an effort is made to obtain it for the benefit of the gold reserves of the banks. The Minister of Finance has power to vary the rate of exchange at which gold is to be accepted in payment of the Consols.

1. The subscriber to the Consols can declare that it is his wish to obtain reimbursement of the gold given in payment of the new Consols after six months of the peace. In this case the gold is valued at his par value, viz., 100 lire for every 100 f., 29.15 for every pound sterling, and 5.15 for every dollar; but the giver has the right, on presentation of a receipt, to obtain reimbursement, after the said six months, of the gold if he will pay the corresponding sum in paper currency.

1. Up to the present the banks of issue had not the right to receive gold deposits. They received, in current accounts, deposits in paper money at the interest of 1.50 per cent, per annum. In future the banks of issue will be authorised to receive gold in a special deposit account, with the yearly interest of 3 1/2 per cent. It is hoped that the privately hoarded gold will be sent to the banks of issue, as the depositors are assured of their right of reimbursement of the pure gold at call. The experiment is, at any rate, well worth making.