BANCA D'ITALIA, a joint-stock bank with a capital of 24o million lire, since June 1926 the sole bank of issue of the kingdom of Italy. Founded in 1893, it is of comparatively recent growth, but it can claim a long line of descent, tracing back to the famous Genoese Bank, the Casa San Giorgio (see The amalgamation in 1849 of the Banca di Sconti, depositi e Conti correnti of Genoa with the Banca di Torino, both operating in the kingdom of Sardinia, gave rise to the Banca Nazionale, which on the constitution of the kingdom of Italy in 1859 shared the note issue privilege with the Banca Nazionale Toscana, the Banca Toscana di Credito, the Banca Romana, the Banco di Napoli and the Banco di Sicilia, all operating prior to Italian Unity as banks of issue in their respective States. By a law enacted in the Banca Romana was liquidated while the Banca Nazionale To scana and the Banca Toscana di Credito amalgamated with the Banca Nazionale to form the Banca d'Italia, which thus became the third bank of issue and so remained until the decree-law of July 1, 1926, conferred on it the sole right to issue notes.
Until then the codified Act of 1910 regulating the three banks of issue (Italia, Napoli and Sicilia) had unified their monetary policy. The fundamental principles of that Act provided for notes issued on "trade account" a cover of not less than 4o% in gold or equivalent valuta, and for those issued to make advances to the Treasury a cover of 33%. A fixed ratio of this cover formed the "irreducible reserve" on which a privileged credit was inscribed in favour of the Bank's note-bearers. Until Dec. 20, 1927, the re serve was entered on the balance sheet of the Banca d'Italia at its pre-war gold parity (25.15 lire = .£ I) .
In Italy as elsewhere, the World War began a period of infla tion for the banks of issue. They had to lend freely to the Gov ernment and to issue notes against these loans, and their note circulation rose from 2,283.3 million lire in 1913 to 18,551.6 mil lion in 1919 of which 2,270.3 issued on behalf of the Treasury.
To meet the industrial situation created by the war a consor tium for subsidies on industrial securities was established by a de cree of Dec. 20, 1914, with the right to rediscount a percentage of its bills with the banks of issue. Post-war financial and indus trial inflation further aggravated the situation, and in March 1922 an "autonomous" section of this consortium, placed under sepa rate management, was opened to facilitate the liquidation of the frozen credits which gave rise to the failure of the Banca Italian di Sconto and the consequent banking crisis at the end of 1921. As a result of these various operations the currency circulation was further inflated by notes representing active transactions of the "ordinary" section of the consortium and by others repre senting the assets which the special "autonomous" section (whose activities ceased on Dec. 31, 1923) was seeking to realize. In the early months of 1925 the value of the bills thus discounted by the Banca d'Italia had risen to over 4,000 million lire and represented a serious source of inflation.
In 1926 the "autonomous" section of the consortium was closed down and a Liquidating Institute took over all the assets of the former body which it is gradually realizing. At the end of 1926 the debt of this Institute to the Banca d'Italia stood at 2,659.9 million lire; on Jan. Io, 1928, it had fallen to 1,331.9 million.
To face possible losses arising from these operations, reserves have been formed by ear-marking a percentage of the annual profits of the Banca d'Italia, and by ascribing thereto the proceeds of the tax on circulation.
The effect of war finance on the situation of the Banca d'Italia and the improvement since 1921 are shown in the following table: Until the close of 1927 the reserves were expressed in lire at the pre-war parity (lire 25.15-6) but since legal stabilization they have been expressed in lire at the new parity (lire 9246=i1).
Following on the decree of July 1926 unifying the note issue, the Banca d'Italia took over 3,782 million lire of outstanding notes of the banks of Naples and Sicily, together with their me tallic and gold exchange cover (310.8 million lire) and credits valued at 802 million lire held by them against the autonomous section of the Consortium.
The remaining notes of the two Banks, amounting to 462 mil lion lire, were retired with their own resources.
This decree also vested in the Banca d'Italia powers of inspec tion and supervision over the operations of all Italian deposit banks; it already held all the capital of the National Institute of Exchange, and so had the control of the foreign exchange mar ket in Italy. During 1926-27, the bank was engaged in accumu lating reserves of gold and "foreign exchange assets," helped therein by the deflationary policy of the Government and by the influx of foreign capital in the form of loans to productive indus tries.
The success of this policy is shown by an analysis of the re serves held by the Banca d'Italia on Jan. 1o, 1928. They were at 12,105.6 million lire, consisting of million lire in gold, million in foreign credits, and 864 million in foreign Treasury certificates, a reserve which afforded a 57.2o% cover to liabilities for notes and all sight debts. This reserve is exclusive of L22,200,000 deposited abroad at the time of the war, which will be gradually returned to the Bank under the London agree ment for Italy's war debt settlement.
This strong financial situation and the fact that the Bank was no longer held in subjection to the Government by a dangerous floating debt and huge advances to the Treasury but had reac quired its full independence as a financial organ, enabled the Banca d'Italia to treat on a footing of equality with the great central banks in view of the stabilization of the lira which the Govern ment had in view and carried out by the decree-law of Dec. 21, 1927.
This decree put an end to the inconvertible paper currency regime, in force since 1894, and re-established Italian currency on the gold basis. The Banca d'Italia is now required to redeem its notes on demand in gold coin or foreign gold exchange valuta at a gold parity of o•0 7 9191 1 grammes, equivalent to a mint parity of 5.26315 cents, approximately at the rate of 19 lire to the dollar and 92.46 lire to the pound sterling.
The bank is required to retain gold or gold exchange valuta re serves amounting to at least 4o% of the total of outstanding note circulation and all other demand liabilities. It was at the same time authorized to revalue its reserves—which had been carried on its books at the old par of 5.18 to the dollar—on the new basis, the resulting excess being applied to extinguishing the outstanding debt of the Treasury to the bank. The item "notes issued on State account" has thus disappeared from the monthly statement published by the bank. To the Banca d'Italia is entrusted the duty of keeping the exchange within the "gold points," on the lines followed by the Bank of England. The decree of Dec. 21, 1927, leaves it free to determine its own policy with regard to the ratio between its gold and gold exchange reserves. It regulates the trend of the money market by its rate of discount, and is def initely tending to become exclusively the "bankers' bank."