External devaluation and trade balance in 1930s Italy

There is a broad consensus that the gold standard was a key element in explaining the Great Depression and the crisis that hit the world economy in the 1930s, spreading protectionism. Against this backdrop, countries had greater difficulty in restoring their external accounts, if needed. Italy in this period repre- sents a perfect case study of a detailed complex of measures taken to defend the country’s gold reserves. The devaluation of the currency was one of the interventions in an attempt to rebalance a structural deficit in the trade balance, which was an important part of this problem. Using a mix of quantitative and qualitative sources, some unpublished, we will analyse the composition of the Italian trade balance before and after the realignment of the lira and attempt to demonstrate why monetary leverage was not enough to rebalance the external deficit. Given the structure of international trade and widespread pro- tectionism, a complex interplay of factors helps explain the persistent precariousness of Italian external accounts, despite a partial improvement in the years preceding the Second World War.