All too often, the mere mentioning of Vatican finances immediately prompts the depiction of mysterious scenarios and obscure arrangements. Recently, an article in the English newspaper The Guardian emphasized that it was funds that the Italian dictator Benito Mussolini’s gave the Vatican that allowed it to build a financial empire that now includes luxury shops in the heart of London. In reality, it is not quite so. History can help us to better understand Vatican finances reason for being. Basically, the Vatican’s financial structure was born with the establishment of Vatican City State, «that piece of land that permits us to fulfill our mission», in Pius XI’s words.

Vatican City State was born as the reparation for a wrongdoing. In 1870, the Bersaglieri soldiers of the Italian King Vittorio Emanuele opened a breach in Rome’s city walls, a dozen metres to the west of the Roman gate – known as Porta Pia – and  marched down Via Pia, defeating Pope Pius IX’s troops. The Pope went into exile to Castel Gandolfo, and most of the Holy See’s patrimony was confiscated. It is in that period that Saint Peter’s Pence collection began. It was a spontaneous collection of offers from the faithful, and this allowed the Holy See to cover its bills. The Kingdom of Italy proposal for reparations, the legge delle guarentigie (Law of Guarantees) was a unilateral offer that did not compensate the Holy See for the loss of goods and lands. In addition, many lands belonging to monasteries and parishes were also confiscated, to give the economy of the Kingdom of Italy a respite. Relations between the Holy See and Italy were very tense. With time, this tension subsided. Catholics re-organized, overcame the Papal ban over political participation in the institutions of the Italian Kingdom, and gave birth to a political thought of their own, along the lines of the “new-born” social doctrine, inspired by Pope Leo XIII –who is considered by many one of the greatest philosophers of the last two centuries. Then, the First World War broke out. Pope Benedict XV was committed to peace, and frustrated by how difficult it was for the Holy See to conduct diplomatic relations. At the time, States entertained diplomatic relations with the Holy See through their embassies to Italy. Countries in war with Italy recalled their ambassadors, and so relations between the Holy See and these States in particular became very difficult. Benedict XV was keenly aware of this: a territory and a sovereign State was needed to carry a mission of peace.

When the First World War ended, Giovanni Giolitti was the Italian premier. Benedict XV considered the possibility of a «Conciliation» between the Church and the Italian State. Giolitti was against any such conciliation because he opposed (like some still do today)  recognizing the Holy See’s sovereignty. «If the Vatican – Giolitti said – would ask me to for a fully sovereign territory the size of a postage stamp (and certainly it would ask for something much bigger), I wouldn’t give it to it. » Giolitti’s words are reported in the Conciliation Memoirs of Cardinal Pietro Gasparri, still unpublished, and also mentioned by Benny Lay – the dean of the vaticanologists – in his book Finanze Vaticane (Vatican Finances). Giollitti’s attitude moved the Vatican to turn its attention to Benito Mussolini, who – when he was just a member in the Chamber of Deputies – took the position that fascism should not preach or practice anti-clericalism. It was 1921. The following year, Mussolini rose to power.

Conciliation negotiations were long and difficult. One of the challenges was agreeing on financial compensation. Pius XI worked personally on this issue. The Pope aimed to obtain an indemnity of 2 billion liras –which the Italian State could pay in instalments. For the Pope, this amount corresponded (with the addition of interests) to what the Italian State had unilaterally committed to pay after the occupation of Rome, per the Leggi delle Guarentigie. Pius XI settled, in the end, with 1 billion and 750 million liras, part in cash, part in bearer bonds.

What to do with this money? Two months after signing the Lateran Pacts and almost thirty days before their ratification, the Pope reached out to Bernardino Nogare (born in 1870, deceased in 1958). Pius XI asked Nogara to manage the funds from the Financial Convention of the Lateran Pacts. This is the «Mussolini money» The Guardian wrote about. This money came, in fact, from the Italian State as compensation for the occupation, and helped the Holy See to carry on its mission.

The Guardian, however, maintains that Mussolini was rewarding the Vatican with a huge amount of money in exchange for support and official recognition of the regime. This money would have been invested in prestigious real estate in London. The real estate belonged to Grolux Investments, a society controlled by the Swiss Profima. The latter could be traced back to the Vatican. In fact Bernardino Nogara was a member of Profima’s board.

Why would any of this be considered breaking news? Bernardino Nogara introduced the Vatican to the holding of stocks. Charged with the Special Section of the Administration of the Apostolic See Patrimony (the so-called Speciale), Nogara bought stocks, making conspicuous and smart investments. Through them, Nogara became a member of the boards of administration of several Italian companies, which enhanced his international prestige. During the Great Depression of ’29, Nogara founded Grolux Investments and the Swiss society Profima, to diversify Holy See investments, particularly by investing in gold and real estate.

The story of the establishment of Grolux is in John Pollard’s book Money and the Rise of the Modern Papacy: Financing the Vatican, 1850-1950. In that book, Pollard follows a money trail over three continents. Pollard’s is said to be a book about Popes and their administration of money. But truly, most of the Popes –with Pius XI one of the exceptions– have not paid any attention to administrative matters.  The latter were delegated to a highly select group of ecclesiastics and lay people with financial expertise. They are fascinating protagonists of this story. Just think about Giacomo Antonelli, Cardinal and Pius IX’s Secretary of State, who oversaw the Papal treasury from 1850 to 1876. Antonelli was one of the architects of the first massive reorganization of the budget for the Papal States. The success of his efforts to balance the budget depended on a loan requested and obtained from the Rothschild Banking House. Some could be surprised: did the Church really ask for a loan to a Jewish bank? In fact, this should not come as a surprise, considering that the Church’s relations with the Jewish community are closer than one may think. So close that Federico Cammeo, a Jewish jurist, drafted the Fundamental Law of the new-born Vatican City State after the Conciliation Bernardino Nogara, furthermore, was a top manager of the Banca Commerciale Italiana, managed by the Jewish banker Giuseppe Toepliz (and because of this, for many years the Vatican did not buy stocks in Italian banks other than the Banca Commerciale Italiana).

Nogara could count on the benefits of a renewed diplomatic activity of the Church.  Benedict XV had left the Vatican coffers empty, because the First World War prevented bishops from coming to Rome for ad limina visits and contribute to Peter’s Pence. From 1930 on, Nogara invested in a web of projects extended throughout Europe and financial centres in the United States and South America. He was the first non-roman to be in charge of the Vatican finances. He came from a family so Catholic that it weep because of the breach of Porta Pia. With a degree in industrial and electro-technical engineering from the University of Milan, he left for England as soon as he married and went to work in a mine in Wales. From there he was sent to a mine in Greece. In 1908, he was living in Constantinople and managing mines in Asia Minor. There, he founded the Eastern Commercial Society, a branch of the Banca Commerciale Italiana. Well-versed in the political and economic realities of the Ottoman Empire, he became the Italian government’s trusted advisor for Easter affairs.  In this role, he was involved in the Ouchy Treaty, which ended the war in Libya between Italy and Turkey. In 1914, Nogara was the Italian delegate to the Board of Administration for the Ottoman Public Debt.  At the end of the First World War, he was part of the economic and financial commission of the Conferences created to draft peace treaties with Austria, Hungary, Bulgaria, and Turkey.

Overall, Nogara was comfortable dealing with multiple relations in diverse context – the diplomatic-political context as well as the banking one. He was the right man to manage a estate with such a clear international make-up that Speciale’s staff were required to be fluent in French and English.

In the meantime, the Opere di Religione (Religious Works) administration increased in importance within the Sacred Walls. Italy’s alliance with Hitler’s Germany in the war, in 1940, makes increasing the operational capacity of the Opere di Religione all the more important and urgent. This branch of the Vatican financial system, since the very beginning of the war, was able to exchange Italian liras for hard currencies, which facilitated the Pope’s aid to the victims of the conflict. How to enhance this work? From 1940 on, the administration of Opere di Religione was placed under a Cardinals’ Commission. Through this mechanism, the Pope’s assistance reached occupied Poland, the Balkans, and wherever the Pope and the Secretariat of State needed it to reach.  As the Ossservatore Romano (the Vatican daily newspaper) recently noted in an article heading, «Pius XII fought Nazism even with (money from the Vatican’s) investments.»

Were these operations legal? Carlo Pacelli – Pope Pius XII’s nephew and general advisor of Vatican City State – raised this issue with some Italian jurists, among them Vittorio Emanuele Orlando – a prominent Italian politician, who had been Prime Minister and was also part of the Italian delegation in the negotiations of the Peace Treaty of Versailles, which ended the First World War. The question was: given that the Opere di Religione operated from the Vatican, were its transactions linked to Vatican City State or could they be considered legally independent? The jurists concluded they could be considered independent. And so, on June 27, 1942, Pius XII promulgated the establishment of the Institute for Religious Works (Istituto per le Opere di Religione, I.O.R.), an entity with its own corporate identity. This permitted the Holy See to deliver the Pope’s aid all over the world, even to Hiroshima and Nagasaki – also thanks to Vatican bank accounts opened in the United States, a request made by Vatican official to the U.S. Chargé d’Affaires Harold Tittman and approved by President Roosevelt.

This is how the Holy See’s estate and financial wealth was born and its management evolved. It is a sovereign wealth fund, managed through a sort of Central Bank (APSA; the Administration of the Apostolic See Patrimony) and an entity (the IOR) which assets are at the sovereign’s disposal, while the Prefecture for Economic Affairs oversees over the dicasteries balances and have now power to address Holy See’s financial and economic policy and everything is under the Authority for Financial Information oversight. These financial arrangements have been enhanced and modernized through the years with new agencies and also new ways to report balances. The Holy See is now committed to a qualitative enhancement toward full financial transparency.  Perhaps this development is most worrisome to those who have been reckless in their interactions with Vatican financial institutions, taking advantages of the latter’s peculiarities and of Vatican sovereignty. Ultimately, the Holy See financial scandals were always about Italian bankers (from Michele Sindona, to Roberto Calvi, to Ettore Gotti Tedeschi, the former IOR president who was recently involved in an Italian bank investigation regarding his role as Italian representative of the Spanish bank Grupo Santander), and in fact relations between Italy and the Holy See have been very tense, seemingly proving a certain level of Italian hostility toward the Holy See’s path to financial transparency. The Holy See has overcome this hostility, embarking on an international standards path, which is the only way to go in a globalized world. This path will eventually make Vatican City State a modern State, with multilateral relations and an internationally recognized financial capacity. This is the only path to make the Holy See independent from any external influence. The question is: who is not comfortable with the Holy See sovereignty?

The international scenario is not encouraging. The United States avoided the default thanks to the debt ceiling agreement, but the credit of the United States had been first downgraded by the Chinese rating agency  Dagong  and then downgraded by Standard&Poors. In the meantime, the Holy See is working intensely to outline a reform of the world monetary system.  In the encyclical Caritas in veritate there were several points remarking it. One above all, the so-called world political authority paragraph. There is the need of a true world political authority – the Pope wrote – «in order to arrive at a political, juridical and economic order which can increase and give direction to international cooperation for the development of all peoples in solidarity. To manage the global economy; to revive economies hit by the crisis; to avoid any deterioration of the present crisis and the greater imbalances that would result; to bring about integral and timely disarmament, food security and peace; to guarantee the protection of the environment and to regulate migration».

A new monetary system could not prescind from a global authority, an authority – an official to the Holy See explains – that «needs to have universal competences and needs to be public». The next G20 – scheduled in Cannes for November, 3-4 – will be on financial markets and world economy. It will be the occasion, for the Holy See, to present his proposal to reform the international monetary system. A first sketch of the reform – now under the examination of Holy See consultants and officials – had been proposed by Michel Camdessus, former president of International Monetary Fund. Camdessus is a consultant of the Holy See, but it will also be a member of the French delegation at G20. France is also the hosting country of the summit. For this reason, there is the opportunity that the proposals of the Holy See will  be at least taken in serious consideration.

Facing the global crisis, many countries began thinking about a reform of the monetary system. Nicolas Sarkozy, president of France, talked about enlarging the G7 to better manage currency markets, expand the International Monetary Fund’s oversight capacity in the field, and to the IMF’s currency basket, Special Drawing Right (SDR),the currencies of emerging economies, like the Chinese yuan. «France supports modifying the IMF’s status to expand its oversight capacity», Sarkozy he noted. This can counter what the president of France views as a «proliferation of unilateral measures during crises resulting in a new financial protectionism in which all economies suffer».

The Holy See will make different proposal. The Vatican diplomacy expressed several times doubts about G20 and the international congresses of that kind, considered something more than a club of friends, with no executive power. Holy See asked for a World Government, since it knows that there is the need of an authority over the State sovereignty and with the goal of the common good. The proposal will be different even from the Camdessus first sketch. Camdessus position is more similar to French one. France – and many other countries, as well – think to a world currency in order to have a concrete currency to refer to. Since the dollar is not convertible in gold, it has no real reference in the economy. The solution the G20 is up to give can be just the one of a financial adjustments decided among the few that will met in Cannes. This – according to Holy See position – is not sufficient. In 2009, the Holy See asked the Doha round to be enlarged to the opinions of the excluded countries. This is still the Holy See position. The reform of the monetary system pass through the reform of the United Nations and the reform of International Monetary Fund. The true fight is between the world leaders that still think that the world order could be managed in restricted meeting and the ones that aim at a true multilateral policy. Camdessus first sketch was going toward the first position. Holy See is going in another direction, and its polar star is the common good of peoples.

It was the common good the goal of the delegation that gathered at Mount Washington Hotel, in Bretton Woods, New Hampshire, in 1944. Preparing to rebuild the international economic system as World War II was still raging, 730 delegates from all 44 Allied deliberated to abandon the Gold Standard – the monetary system based on the convertibility of all the currencies in gold – and to embrace a more appropriate system for capitalism. In fact, the new international monetary system was a return to a system similar to the pre-war gold standard, only using US dollars as the world’s new reserve currency until the world’s gold supply could be reallocated via international trade.

Two projects of a new monetary system had been discussed in Bretton Woods. The first project was by the English economist John Maynard Keynes. Keynes outlined the institution of a Central World Bank, in order to intervene on the markets to regulate the relationships between debtors and creditors. The bank was supposed to have its own currency, that Keynes called Bancor. The second project was by Harry Dexter White, under-secretary of the Us  Ministry of the Treasure, and outlined a simple leveling-off fund of tax exchanges. The result was a compromise: the economic policies of the State would be coordinated by the International Monetary Fund and from the World Bank; the dollar become the only currency convertible in gold, so having a central role in the economical system.

But Europe – and in particular Germany – lived an incredible economical growth. Always more creditors asked to convert their dollars in gold. In 1971, the Us president Richard Nixon unilaterally suspended the convertibility of Us dollars in gold. It was the end of Bretton Woods. It was the beginning of a variable economy world. The yellow gold was up to be substitute by the black gold, the oil – during the Seventies the oil crisis became a central topic of financial issues.

Here and then, the idea of a world currency letted out from the think-rooms of the Council on Foreign Relations, of Trilateral commission – a group founded by David Rockfeller in 1973, whose member are, or has been, Henry Kissinger, Zygmunt Brzezinsky, George Bush sr., Dick Cheney -, and of Bildeberg Group. In 1988, The Economist – an English magazine read with much attention even in the Vatican Secretariat of State – launched the idea of a world currency named Phoenix. The International Monetary Fund created in 1969 the “embryo” of a new kind of currency, the Special Drawing Rights (SDR). SDRs are not credits the State have with the International Monetary Fund. The State, on the other hand, can sell SDRs, so sustaining their own currency. The world currency auspicated by president Sarkozy would be, in some way, and evolution of SDRs. Something similar to the “bubble that will save us” outlined a couple years ago by Ettore Gotti Tedeschi, president of the I.O.R. (Institute for Religious Works, the “bank” of the Vatican), in an article on the Holy See’s daily Osservatore Romano. Something similar to what the Trilateral Commission outlined in 1989 in a report titled: “International Financial Integration: the Policy Challenges”.

The Holy See looks beyond, conscious that nowadays international finance is made up of fictitious capital. The Holy See aims to re-anchor the international monetary system to the real economy. In fact – officials of the Roman Curia underline – it was not globalization to let multinational groups and private interests take the control of global economy. It was the States to abdicate part of their sovereignty in the name of profit, and now they are stuck in the system.

In the mean time, China downgraded the United States financial rating, and this caused the fall of Western stock exchanges. Until now, China has always been marginalized by the Western economic world. But now its economy has so flourished to let the China “fire” all European and American bonds without consequences in their internal balance. China is now claiming for more weight in the international issues. Somebody is wondering – it is just an attractive hypothesis – if it was the Chinese offence for having been marginalized in the international scenario at the origin of the exacerbation of the Chinese diplomatic relationship with the Holy See.

The Holy See have a great International prestige. Neverthless the See Change campaign, the Holy See is Un Permanent Observer with reinforced powers. Every time the permanent observer speaks during the general assembly, even the sleepiest among the delegates pay much attention to the Holy See Statements. Holy See is now one of the few – if not the only one – asking for a really multilateral international policy. And it was one of the first to preview the fall of the false gods.