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Paper Money but a Gold Debt. Italy in the Gold Standard

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  • Giuseppe Tattara

    (The University of Venice)

  • or consequences)

Abstract

During the 52 years between the Unification of the Kingdom of Italy and World War 1, the lira was legally convertible into metal for a limited period of time. Although not formally committed to gold, the lira exchange towards the gold standard countries proved remarkably stable, \223shadowing\224 gold. It is widely claimed that being one of the successful members of the gold standard circle entailed a number of advantages. If the lira was closely linked to gold, suggesting that there was only a small cost connected to adopting the gold standard, then why did Italy not make all possible efforts to resume as soon as possible and adhere more strictly to the gold standard? Italy had a large foreign debt that was basically the result of Unification. This debt was denominated in lira, but foreign holders could convert their coupons into gold at the official rate in Paris. Italy could exploit its domestic bondholders by allowing the lira to depreciate, while insisting that domestic holders of the debt accept lira. But there were limits to this process because Italians could take the coupons to Paris have them paid in gold and because payments abroad, in gold, became more expensive following depreciation. The paper explores the various measures the Italian government used to prevent arbitrage, and the strategies bondholders used to circumvent them. In the end, however, it was clear that if devaluation went too far, most of the coupons would be presented in Paris, the debt would de facto became a gold debt, and the Italian Treasury would suffer a substantial loss of gold. Hence the convenience of letting the lira float downward and exploit seignorage any time domestic conditions became more critical. At the same time it was necessary to keep depreciation within a certain range, \223shadowing\224 the lira par value.

Suggested Citation

  • Giuseppe Tattara & or consequences), 2002. "Paper Money but a Gold Debt. Italy in the Gold Standard," Economic History 0205002, EconWPA.
  • Handle: RePEc:wpa:wuwpeh:0205002
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    Cited by:

    1. David Greasley & Les Oxley, 2010. "Cliometrics And Time Series Econometrics: Some Theory And Applications," Journal of Economic Surveys, Wiley Blackwell, vol. 24(5), pages 970-1042, December.
    2. Toniolo, Gianni & Conte, Leandro & Vecchi, Giovanni, 2003. "Monetary Union, institutions and financial market integration: Italy, 1862-1905," Explorations in Economic History, Elsevier, vol. 40(4), pages 443-461, October.
    3. Michael D. Bordo & Marc Flandreau, 2003. "Core, Periphery, Exchange Rate Regimes, and Globalization," NBER Chapters,in: Globalization in Historical Perspective, pages 417-472 National Bureau of Economic Research, Inc.
    4. Manmohan Agarwal, 2017. "The Operation of the Gold Standard in the Core and the Periphery Before the First World War," Working Papers id:12074, eSocialSciences.
    5. Giuseppe Tattara, 2002. "Un margine di arbitraggio non sfruttato sulla Rendita Italiana a Parigi?," Rivista di storia economica, Società editrice il Mulino, issue 1, pages 51-64.
    6. Meissner, Christopher M., 2005. "A new world order: explaining the international diffusion of the gold standard, 1870-1913," Journal of International Economics, Elsevier, vol. 66(2), pages 385-406, July.
    7. Harold James & Kevin H. O'Rourke, 2011. "Italy and the first age of globalization, 1861-1940," Quaderni di storia economica (Economic History Working Papers) 16, Bank of Italy, Economic Research and International Relations Area.
    8. Filippo Cesarano & Giulio Cifarelli & Gianni Toniolo, 2009. "Exchange Rate Regimes and Reserve Policy on the Periphery: The Italian Lira 1883-1911," Working Papers - Economics wp2009_11.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    9. Filippo Cesarano & Giulio Cifarelli & Gianni Toniolo, 2012. "Exchange Rate Regimes and Reserve Policy: The Italian Lira, 1883–1911," Open Economies Review, Springer, vol. 23(2), pages 253-275, April.
    10. Michael D. Bordo & Christopher M. Meissner, 2007. "Financial Crises, 1880-1913: The Role of Foreign Currency Debt," NBER Chapters,in: The Decline of Latin American Economies: Growth, Institutions, and Crises, pages 139-194 National Bureau of Economic Research, Inc.
    11. Christopher M. Meissner, 2013. "Capital Flows, Credit Booms, and Financial Crises in the Classical Gold Standard Era," NBER Working Papers 18814, National Bureau of Economic Research, Inc.
    12. Silvana Bartoletto & Bruno Chiarini & Elisabetta Marzano, 2013. "Is the Italian Public Debt Really Unsustainable? An Historical Comparison (1861-2010)," CESifo Working Paper Series 4185, CESifo Group Munich.
    13. Kevin Hjortshøj O'Rourke & Harold James, 2012. "Italy and the First Age of Globalization, 1861-1940," Oxford University Economic and Social History Series _094, University of Oxford, Department of Economics.
    14. Tattara, Giuseppe & volpe, mario, 1997. "Italy, the fiscal dominance model, and the gold standard age," MPRA Paper 37155, University Library of Munich, Germany.
    15. Paolo Di Martino & Barbara Pistoresi & Alberto Rinaldi, 2016. "International financial flows, domestic banks, and the economic development of the periphery: Italy, 1861-1913," Department of Economics 0104, University of Modena and Reggio E., Faculty of Economics "Marco Biagi".
    16. Harold James & Kevin H. O'Rourke, 2011. "Italy and the first age of globalization, 1861-1940," Quaderni di storia economica (Economic History Working Papers) 16, Bank of Italy, Economic Research and International Relations Area.
    17. Silvana Bartoletto & Bruno Chiarini & Elisabetta Marzano, 2012. "The Sustainability of Fiscal Policy in Italy: A Long-Term Perspective," CESifo Working Paper Series 3812, CESifo Group Munich.
    18. Morys, Matthias, 2013. "Discount rate policy under the Classical Gold Standard: Core versus periphery (1870s–1914)," Explorations in Economic History, Elsevier, vol. 50(2), pages 205-226.

    More about this item

    Keywords

    economic history gold standard convertibility debt;

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913
    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913

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