In the words of Marco Fanno, it becomes “the central institution around which the banking structure gravitates and on which it is hinged, …the body regulating the market, … the last line of defence to activate at times of grave difficulty.”3 The suspension of the gold convertibility of banknotes during the First World War drew the attention of economists and economic policy makers directly to inflation, not in the old sense of increase in the stock of banknotes but in the modern sense of rise in the general price level.
The value of money lies in its purchasing power and therefore inflation means devaluation of the currency. Keeping prices down – although still instrumental to the lira’s external convertibility – became the objective of economic policy under the new system of the gold exchange standard that prevailed after the War.