The Vatican is not normally the subject of breaking news, but when a Pope decides to step down, that’s big news; the last time it happened was around the time when Johannes Guttenberg invented the printing press in the 15th century, 300 years before the United States was born.

The news has put the spotlight on the Vatican, but interestingly, many North Americans know very little about it as a sovereign city-state. The Vatican is located within the city of Rome; it is 110 acres large and has a population of 800. This makes it the world’s smallest country.

SEE: A Guide To Faith-Based Investing

Holy See Revenue and Investments
In order to gain an understanding of the complex economy of the Vatican, it is important to establish the differences between Vatican City and the Holy See. The Holy See is the governing body of the nation. If you entered into a contract with the territory, you would do it with the Holy See, in most cases. Vatican City is the physical area where the Holy See resides.

The Holy See generates revenue from Peter’s Pence, an 8th Century term for donations that are received from Catholics all over the world. From individuals to dioceses, the Holy See collects the donations through a special department. The Holy See also gains revenue from interest and investments of its reserves.

Historically, the Holy See invested mainly in Italian industries, spreading its portfolio between stocks and bonds, and limiting its stake in companies to less than 6%. It has invested conservatively, choosing to buy and hold proven companies in strong industries; because of this, investments in the developing world are limited.

More recent investments have been more international, however, particularly in western European currencies and bonds, with some activity in the New York Stock Exchange. The Holy See also has investments in real estate around the world, particularly in land and churches.
There are some investments that the Holy See won’t make however; no investments are made in companies that go against church values, such as pharmaceutical companies that manufacture birth control.

Currently, the Holy See is running a deficit. The Los Angeles Times Reports that the Holy See had a shortfall of $18.4 million in 2012. Officials blamed the soft European economy and the cost of paying its 2,832 employees, as well as spreading the Catholic faith through its various media outlets.

Although Pope Benedict XVI, had made efforts to make the country more transparent, its finances are still a bit of mystery, and some believe that the numbers are more general in nature than accurate and audited. For that reason, it’s nearly impossible to gauge the financial health of the Holy See, although there’s little doubt among those who study the church that it has significant reserves.

Vatican City Revenue and Banking
The Vatican, by contrast, receives revenue from more traditional stately ventures. There are no formal tourism efforts but the Vatican also collects revenue through museum admissions, tours, highly sought-after stamps and coins and the sale of publications.

Vatican City, on the other hand, was $27 million in the black after 5 million visitors toured in 2012, buying up collectibles and visiting museums.

In January, the Bank of Italy conducted routine inspections and found that Deutsche Bank Italia hadn’t sought proper authorization to process credit card transactions on behalf of the Vatican.

When Deutsche Bank asked for permission, it was turned down due to the Vatican not meeting anti-money laundering standards. The Vatican said that it’s scrambling to meet all provisions to restore credit card payments but as of now, it’s cash only if you’re visiting.

The Bottom Line
The Vatican is the smallest country in the world with an economy (and most everything else) shrouded in secrecy. Slowly, more information is emerging but some doubt that numbers are accurate. Still confused? So is everybody else.

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