Abstract
From the beginning of the 1950s to 1963, Italy experienced rapid economic development and eventually declared the external convertibility of its currency with the major European nations in 1958. In this period, Italy participated in the Bretton Woods system and the European integration process. In this chapter, we will review how the Bretton Woods system infected and restricted the economic policy management of the member countries by examining the Italian experience.
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Notes
- 1.
- 2.
Donato Menichella assumed the position as the general director of the Bank of Italy on April 19, 1946, by recommendation of Luigi Einaudi, governor of the Bank at that time. He engaged in a bailout and liquidation of the big bank groups in the 1920s, then executed a series of public interventions in the banks and the industrial companies after 1933 as the general director of the Institute for Industrial Reconstruction (Istituto per la ricostruzione industriale, IRI). Carli outlined how the recruitment of Menichella disappointed the industrialists of northern Italy and made them hostile to Einaudi’s initiatives. Carli (1993), p. 84.
- 3.
Regarding Einaudi’s fight for stabilization, see Archivio Storico Banca d’Italia (ABI), Direttorio Menichella (DM), cart. 98, fasc. 1, pp. 78–88, “Introductory Remarks: Per Jacobsson and Monetary Development in Italy, 1946–1947,” 1966; Fratianni and Spinelli (1997), pp. 168–171.
- 4.
- 5.
Cotula et al. (1997), doc. 12 “Discorso all’assemblea dell’Associazione Bancaria Italiana,” 18 gennaio, 1947.
- 6.
Regarding the deposit requirement, see Fratianni and Spinelli (1997), p. 174: “Credit institutions had to deposit with BI or purchase government securities for an amount equal to 20 % of the difference between their deposit base and ten times their net worth, and 40 % of any subsequent increase in deposits. Amounts deposited with BI yielded the interest applied on short-term Treasury bills less 25 basis points.” Cfr. BIS (1949), p. A3.
- 7.
IMF SM/248, “The Financial Situation in Italy,” June 21, 1948.
- 8.
ABI, DM, cart. 98, fasc. 1, pp. 78–88; Cotula (2001), pp. 51–53.
- 9.
- 10.
For example, in 1956, approximately 330 billion lire of the reserve deposit with the Bank of Italy was invested in tresuary bonds. IMF SM/57/23, “1956 Consultation—Italy,” p. 5.
- 11.
Regarding the legal reforms of the Bank of Italy, see Fratianni and Spinelli (1997), pp. 174–189; Cotula (2001), pp. 12–18. In the middle of 1945, 97 % of the Bank of Italy’s assets was treasury credit. Einaudi, assuming the post of governor in January, criticized the situation at that time, saying that rather limited room was left for the bank of issue’s autonomous action.
- 12.
IMF EBM/Meeting 147—March 18, 1947.
- 13.
- 14.
The UIC mediated foreign exchange trade directly and indirectly from a period of the absolute monopoly of the foreign exchange until April of 1990, when the restriction regarding foreign exchange was totally abolished. See the UIC (1995), p. 171.
- 15.
The exchange rate in the free market was called the “free rate” (IMF, Bank of Italy), the “export rate” (Bank of Italy), and the “free market rate” (BIS) at the time. In this chapter, we use the term “free rate.”
- 16.
IMF SM/79, “Foreign Exchange Practice in Italy,” April 11, 1947.
- 17.
Guido Carli was an official of the IRI from 1938 and dealt with war planning. He was chosen by Einaudi for the UIC in 1945, served as the executive director for the IMF (from 1947), as chairman of the EPU (1950–1952; as a member until 1958), as Minister for Foreign Trade (1957–1958), as governor of the Bank of Italy (August 1960–July 1965), as President of Confindustria (1976–1980), as a senator (1983–1992), and as Minister of the Treasury (1989–1992). Cfr. Asso (2011).
- 18.
Cotula et al. (1997), doc. 16 “Lettera di rappresentante dell’Ufficio Italiano dei Cambi a New York Giorgio Cigliana,” Roma 14 luglio, 1947.
- 19.
IMF EBM 223, November 12, 1947.
- 20.
The quotes for Italian bank-notes on the free market in Switzerland, corresponding to the quotes for foreign currencies on the black market in Italy, reached their maximum in May of 1947 when, at times, nearly ITL 950 was paid for a dollar, while the official rate was only ITL 225. BIS (1949), p. A3.
- 21.
IMF EBM228, December 2, 1947; EBM229, December 2, 1947; EBM230, December 4, 1947; EBD243 “Exchange Actions in Italy,” December 3, 1947.
- 22.
Cotula et al. (2003), p. 462. Einaudi explained the rationale behind the policy of not using the counterpart funds for public investment: As they did not come from loans or taxes, they were equivalent to a net creation of money, having dangerous implications in terms of inflation. See Martinez Oliva (2003), pp. 15–16.
- 23.
At the EPU, the multiple settlement system created at the end of 1950, each country’s foreign position with other countries was to be reported monthly to the BIS and the offsetting claims cleared. Martinez Oliva (2003), p. 19. Carli chaired the managing board of the EPU for its first 2 years.
- 24.
Article XIV, Sec. 4 stipulated that “Five years after the Fund begins operations, and in each year thereafter, any member still retaining any restrictions inconsistent with Article VIII, Section 2, 3 or 4, shall consult the Fund as to their further retention.” On the consultation methods the Executive Meeting discussed and resolved in January 1952. IMF EBM/52/6, January 24, 1952.
- 25.
IMF ERD52/53 “Italy – Restrictive System 1952 Consultation,” August 4, 1952; European and North American Department (ENA) 52/53 “Italy – Recent Economic Development (Consultation Memorandom),” August 5, 1952; SM52/53, “Italy – Staff Discussions 1952 Consultations,” August 5, 1952.
- 26.
When Gutt visited Italy in August 1951, he asked the authorities whether, in view of the remarkable stability of the lira for more than two years, they had considered discussing the establishment of an initial par value with the Fund. They replied that the matter had been actively considered but there were a number of difficulties. Italy was concerned about the possible effects of rearmament, trade liberalization measures in connection with the OEEC, and any decline in aid from the ECA (Economic Cooperation Agency). However, the main uncertainty was that a new tariff system was being introduced, and the authorities could not know in advance the impact of the new measures on the cost of living. This topic was discussed again in the executive board meeting; however, Italian Executive Director, Cigliana repeated the same explanations. IMF, EBM/636, January 31, 1951.
- 27.
A series of meetings were held between delegates of Italy and the IMF staff team in Rome between September 21 and October 9, 1953. The principal delegate of the Italian government was Guido Carli, director of the UIC. Other officials authorized by their governments discussed specific issues with the IMF staff.
- 28.
Wool had been imported from Argentina before trade liberalization with the EPU, but it no longer was available in sufficient quantities or at competitive prices. Therefore, there was a shift in purchases in the sterling area. There were also shifts regarding certain commodities such as wheat and copper from the dollar area to the EPU supply sources (e.g., Turkey and the Belgian Congo). IMF SM/53/89, p. 3. Exempted items for EPU import liberalization were automobiles (industrial protection), antibiotics (infant industry), and grains. IMF C/Italy/420.1 Box 4, File 1, December 22, 1953.
- 29.
“More Talks on Convertibility. Coming World Bank and OEEC Meeting,” in The Financial Times, August 11, 1953. In September, 1952, the Italian minister, “La Malfa’s announcement that Italy would retract its trade liberalization in case of need, and in the absence of concrete American support, prompted only generic expressions of appreciation. Further complaints on Italy’s precarious situation following the French and British retreat and the threat of reactivating import controls also failed to produce tangible results.” Martinez Oliva (2003), p. 21.
- 30.
The IMF staff group visited Rome between July 14 and July 27,1954. The Italian government was represented by Carli, and the IMF staff group had technical discussions with officials of the Bank of Italy and the Ministry of Foreign Trade. IMF SM/54/113 “Italy—1954 Consultations,” October 26, 1954; EBM/54/58, November 22, 1954.
- 31.
Net tourist receipts increased from 75 million dollars in 1952 to 131 million dollars in 1953. The IMF concluded that it was due to the fact that foreigners made increasing use of official channels for exchange conversion that showed the adequacy of the official rate; additionally, Italy had proven to be an attractive destination with relatively cheap prices. IMF C/Italy/1760 Box 18 File 2 “Adequacy of the Present Exchange Rate of the Italian Lire,” August 9, 1954.
- 32.
“Guido Carli had earlier advocated a further tightening of controls on imports from the United States, provoking strong reactions by the American authorities.” Martinez Oliva (2003), p. 23.
- 33.
At the previous year’s consultation, the IMF staffs noted that under the Italian dollar import restriction, raw materials, machinery, and food were given priority whereas consumption goods were strictly set aside. They considered that there was, no doubt, a great demand in Italy for American consumer products (such as refrigerators) with better quality for the same price and asked Italy to give an estimate of the demand for consumption goods that would be released if dollar imports of such goods would be freed. The Italian representatives, however, declined this request. IMF C/Italy/420.1, Box 4 File 1, September 22, 1953. Regarding liberalization in August of 1954, almost all of the additional goods were raw materials.
- 34.
La Malfa, Ugo, “La convertibilità della moneta,” La Stampa, 25 giugno 1954. Cf. IMF SM/53/28 “Report on Discussions at the OEEC on the Future of EPU, April 9, 1953; SM/54/53 “Discussion on Convertibility in the OEEC Countries, May 12, 1954.
- 35.
1955 consultation was held in September and discussed at the Executive Board Meeting in December. IMF C/Italy/420.1 Box 4 File 4 “Exchange Restrictions Consultations in 1955 Minutes of Meeting”; SM/55/77 “1955 Consultations – Italy”; EBM/55/62, December 27, 1955.
- 36.
“It begins to be clear…that the real limiting factor of an expansion of the investment policy in Italy is given by the balance of payments…: no one can misapprehend that we have the chance to borrow abroad…that would be necessary to cover the deficit of the balance of payments…determined and enhanced by the large investment policy.” [translated by the author] D. Menichella, Dichiarazioni alla Commissione d’inchiesta sulla disoccupazione, Camera dei Deputari, Roma 1953, pp. 130–132, cited in Cotula (2001), p. 20, n. 58.
- 37.
Regarding the currency reforms of 1955 – 1956, see Fratianni and Spinelli (1997), p. 198; Carli (1993), pp. 120–123; Cotula (2001), p. 62; IMF C/Italy/420.1 Box 4 File 4, “1955 Consultation with Italy Summary Record of Meeting held on September 21, 1955”. With the free market of foreign banknotes established in 1956, the emigrant remittance and foreign currency of tuorists were traded.
- 38.
IMF SM/57/23 “1956 Consultations—Italy,” March 20, 1957; C/Italy/420.1, Box 4 File 5, “Exchange Restrictions Consultations in 1956. Minutes of Meetings”; EBM/57/18, April 24, 1957. 1956 consultations were held from December 3–10, 1956, in Rome. The Italian representative was Guidotti of the Bank of Italy, and the IMF staff also had meetings with Carli and Menichella.
- 39.
The 1957 consultation meetings were held in Rome from January 27–February 4. IMF SM/58/38 “1957 Consultations–Italy,” May 9, 1958; EBM/58/25, June 11, 1958.
- 40.
IMF EBM/59/40, October 7,1959; SM/59/55, “1959 Consultations–Italy.”
- 41.
IMF EBS/61/17 “Italy—Acceptance of Obligation of Article VIII, Sections 2, 3, and 4,” February 13, 1961.
- 42.
Italy paid 1/100th of 1 % of its quota in U.S. dollars on March 27, 1947, and made a gold subscription payment equivalent to 25 % of its quota in April of 1958. Then, in October of 1959, it paid the remaining 75 % and additional currency subscription by lire. IMF EBD/58/63, “Italy–Gold subscription payments,” April 15, 1958; EBD/59/125, “1959 Italy–Payment of Original Quota Subscription and Currency Portion of Quota Increase,” October 15, 1959.
- 43.
IMF EBS/60/28 “Italy—Initial Par Value,” March 23, 1960.
- 44.
Cotula et al. (1997), doc. 28 “Verbale di riunione presso il ministero degli Affari Esteri,” 27/8/1949.
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Ito, K. (2015). The IMF and Italy: Trade Liberalization and Return to Convertibility. In: Yago, K., Asai, Y., Itoh, M. (eds) History of the IMF. Studies in Economic History. Springer, Tokyo. https://doi.org/10.1007/978-4-431-55351-9_9
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