ITALY: Back on Gold

Signer Benito Mussolini abandoned, last week, his most heroic financial policy: the attempt to increase the value of Italian paper money until it should stand at par (TIME, Sept. 13, 1926 et seq.). Admission that this policy is impracticable was shrewdly avoided by Il Duce up to last week, when he found a way to mask failure behind a dazzling cabinet decree. This document, issued with a triumphal flourish, establishes the lira on a gold basis— not, however, at par (five lira to the dollar), but at 19 to the dollar, the new ratio being slightly lower than the ordinary quotation of the lira on international exchange in recent weeks.

Having aimed at a par of five and made a bogey 19, Signer Mussolini alibied: "Further revalorization would be possible but undesirable. . . . The level of revalorization already reached. . . . is most satisfactory. ... It corresponds to the gold index of world prices and represents the point where all interests of the State and of individuals find a fair equilibrium. . . ."

Sound Bogey. Seasoned critics overlooked the weaseling in Il Duce's statement, last week, and did not stint their praise. He had made, they knew, a sound," judicious bogey. They recalled that among all the allied powers the only one to make par in Devaluating its currency is Great Britain.

Restoration of the British pound to par required titanic sacrifices and was a sort of financial hole in one. France has no more than aimed at the British score, content with mere de facto stabilization of the franc (TIME, Jan. 3, 1927). Therefore Signer Mussolini did well, last week, when he pocketed proud hopes of setting the lira up beside the pound. Italy, a young kingdom with cheap labor for its chief resource, cannot match an accomplishment which is straining even the strong sinews of the British Empire.

Bank Backing. A suave, plump, oval-faced statesman, eyes keen, beard a scrubby Vandyke, was hailed as the real creator of the new gold lira. He is Count Guiseppe Volpi di Misurata. Citizens of the U. S. remember the business-like fashion in which he negotiated the funding of Italy's War debt to the U. S. (TIME, Nov. 23, 1925). Last week he revealed the vast credits which he has built up abroad to enable Italy to defend her new currency against fluctuation on international exchange. Said he: "The Bank of Italy wishes to secure the collaboration of international bankers—just as the Bank of England did when the British Government decided to return to the gold standard. . . . Negotiations were conducted [last fortnight] in London by the Director General of the Bank of Italy. . . . with the Governor of the Federal Reserve Bank of New York who purposely had journeyed to London, and the Governor of the Bank of England, as well as with an important group of Anglo-U. S. bankers.

"It was decided that two credits would be opened on which the Bank of Italy can draw. The first amounting to $75,000,000, was granted on a gold basis by the central banks of 14 countries, among which are America and Japan, headed by the Federal Reserve System of the United States and the Bank of England. The second, amounting to $50,000,000, was granted by the Anglo-American bankers headed by the Morgan bank and with the participation of such banks as the Hambro, Rothschild, Baring et cetera, and five great English banks.