Abstract

The emergence of the Bank of Italy as the principal entity responsible for monetary control is the result of a radical institutional transition that must be analysed holistically, a part from reductionistic illusions. The Treasury and an élite group from the public-sector played a strategic role in starting and directing this process. From the passing of the Banking Law of 1893 to the First World War, there was a succession of different models of monetary authority. The establishment of a system that gave pre-eminence to the Treasury brought about a sudden break with the old conceptions and practices. Later, there was a continually greater delegation of authority to the Bank of Italy and in the beginning of the 1900s, an ideal type of issuing institution characterised by its central position and close integration within the banking system emerged. This process was connected to profound changes in the Bank of Italy's top management and decisional process. Shareholders' interests were shunted aside and a new a management was empowered. It definitively lost its former characteristic as representative of the main banking and industrial groups and acquired features of the public-sector "grand commis". During these twenty years, the objectives of monetary control and financial stability that had to guide the Bank of Italy's actions progressively and clearly emerged. Far from strictly adhering to the canons of the time, monetary strategy and conduct were tailored to Italy's conditions. The main results were 1) the adaptation of the preference function to a highly unstable environment on which the Bank had little influence, to the needs for economic development and to the problems left by the legacy of worthless assets as a legacy of the 1880s and the crisis of 1893 and 2) the search for operative instruments and models of monetary conduct suitable to the scarce impact of changes in the discount rate on international capital flows, to segmentation of the market and to the minimal integration of issuing banks with the most modern and important segments of the banking system.