Monetary policy at the periphery during the Classical Gold Standard: Italy (1894–1913)

This paper analyzes monetary policy in Italy between 1894 and WWI by focusing on the main bank of issue at the time (the Banca d’Italia , BdI) and the Treasury. We show that the Treasury set multiple official rates, and the BdI determined an ”effective” rate transmitted to the market by discounting different bills to the various rates; we provide an original measure of this rate based on primary sources. The BdI changed its rate in response to the domestic market rate (although with a milder reaction than the Treasury), the stock of money in circulation, and its reserve coverage ratio. Changes in the official discount rates in France and Germany also triggered relatively modest reactions. Neither the exchange rate nor the state of the domestic economy affected the setting of the rate. Until the turn of the century, the BdI only targeted corporate goals of profitability and financial soundness, while it also pursued policy aims afterward. In this context, the bank set the discount rate to accumulate reserves for market interventions.