1“Money Creation under the Gold Standard: The Origins of the Italian Banking Crisis of 1893”1

The aim of the paper is to study the monetary origins of the Italian banking crisis of 1893. The Italian experience under the Gold Standard can be seen as paradoxical. Italy came back to the gold standard in 1881 and very soon after, its economy suffered inflation, asset prices inflation and a major banking crisis. Was the Gold Standard rule at the origin of the crisis? In fact, Italy came back to the gold standard after a long period of suspension of convertibility (since 1866). An international borrowing allowed the country to restore an official gold convertibility. With this international borrowing, Italy has taken commitments toward international community (especially France) to respect the constraint of the Gold Standard. Nevertheless, the structural deficit in public finance (public spending was always above the revenues of the Italian state for military reasons and infrastructure development) was not resolved. Public spending was financed by borrowing and money creation. The government managed to keep inflation repressed and used every desperate means to prevent gold to flee from Italy. These means were the restrictions to bank clearing and protectionism. The Italian government has been led to intervene more and more in the economy for easing the consequences of the inflation. The banking crisis was forwarded by inflation in assets prices (especially housing boom) and consumer prices at the end of the 1880 years. The paper explains the links between state borrowing, restrictions to bank clearing and economic crisis. We used banks of issue balance sheets to show the monetary creation in order to finance public deficit. Our major sources fo