mario draghi : the culture of monetary stability from unification to the present day address by mr mario draghi, governor of the bank of italy and chairman of the financial stability board, at the inauguration of the exhibition “ the currency of united italy : from lira to euro ”, palazzo delle esposizioni, rome, 4 april 2011. * * * the bank of italy is making a twofold contribution to the 150th anniversary of the unification of italy. with the collaboration of numerous experts from italy and abroad, it is sponsoring a vast research project – entitled italy and the world economy, 1861 – 2011 – on the italian economy ’ s response to the major changes in the international scenario that have taken place from the birth of the unified state to the present day. the results of this research will be presented at a conference in rome on 13, 14 and 15 october. for the wider public, and particularly for young people, we are inaugurating today the exhibition on the currency of united italy : from lira to euro. the thread that runs through the 150 years of italian monetary history since unification draws together two fundamental events : the country ’ s monetary unification, which the newly formed italy undertook in order to strengthen the foundations of its political unity ; and, closer to our time, italy ’ s participation in european monetary unification, achieved despite the lack of political unity. this story, from the lira to the euro, illustrates a central point for all of us today – the importance of monetary stability and of a political and economic culture that recognizes its value. guido carli suggested a logical path to take. “ if international competition ”, he wrote in 1961, “ is indeed the most powerful incentive towards our country ’ s economic development, there can be no doubt that, in turn, its strongest pillar is monetary stability. this, too, is a lesson handed down to us through a century of italy ’ s – sometimes painful – experiences as a nation state. ” 1 the concept of monetary stability changes with time, alongside the technological and institutional conditions that determine it. between the 19th and 20th centuries, italy, too, switched from a system in which money was made of, or could be converted into, precious metal to one based on purely fiat money. in the first system, monetary stability is ensured by maintaining the gold convertibility of the currency at a fixed parity. by and large, italy managed to do this : on the eve of the first world war, despite some

, and thus of reconstituting savings, was pursued with courageous determination, in the belief that the defence of the currency would create a solid basis for the country ’ s economic recovery. the path of international integration was followed by joining the bretton woods monetary system. in the 1950s italy enjoyed a period of unprecedented monetary stability and economic growth. the exchange rate with the dollar was stable, and remained so until 1971 ; for the first time the rate of inflation in italy was in line with, if not lower than, that of the other leading european countries. the end of the bretton woods system at the beginning of the 1970s concluded the transition from commodity money to fiat money. troubled times ensued : international economic relations were affected by deep shocks, such as the oil crises. during this passage italy paid a high price in terms of loss of value of the lira : double - figure inflation eroded households ’ purchasing power and periodical devaluations gave only temporary relief to a productive system labouring to restore its efficiency and competitiveness. in the following decade the decision was taken to advance the construction of the european community through the completion of the single market and, eventually, the economic and monetary union and the euro. italy took a leading role, responding to the widespread aspiration of the nation. these prophetic words were pronounced by carli at the beginning of the 1970s : “ during italy ’ s risorgimento the european ideal was deeply engrained in the effort to achieve national unity, so that the two ideals were not seen as contradictory but as phases of a single process moving towards the expression of a culturally homogeneous community. events in the last decades have given a sense of urgency to what might have seemed a utopian vision during the last century, so that the accomplishment of european unification is considered an indispensable development for the very survival of the values embodied in national ideals. ” 5 carlo cattaneo ( 1839 ), “ delle crisi finanziarie e della riforma del sistema monetario ”, il politecnico, 1, june, 548. marco fanno ( 1912 ), le banche e il mercato monetario, athenaeum, roma, 131 and 147. banca d ’ italia ( 1947 ), annual report of the governor to the general meeting of shareholders, “ final considerations ”, 51. bank of italy ( 1973 ), abridged version of the report for the year 1972, “