Financial centre

A financial centre or financial center is defined by the IMF as encompassing:[lower-alpha 1] International Financial Centres (IFCs), such as New York City,[2] London, and Tokyo; Regional Financial Centres (RFCs), such as Shanghai, Seoul, Frankfurt, and Sydney; and Offshore Financial Centres (OFCs), such as Cayman Islands, Dublin, Hong Kong, and Singapore.[lower-alpha 2]

The City of London (the "Square Mile") is one of the oldest financial centres. London is ranked as one of the largest International Financial Centres ("IFC") in the world.
For a list, see List of financial districts.

Finance
New York City's Financial District in Lower Manhattan, including Wall Street. New York is ranked as one of the largest International Financial Centres ("IFC") in the world.

IFCs, and many RFCs, are full–service financial centres with direct access to large capital pools from banks, insurance companies, investment funds, and listed capital markets, and are major global cities. OFCs, and also some RFCs, tend to specialise in tax-driven services, such as corporate tax planning tools, tax–neutral vehicles,[lower-alpha 3] and shadow banking/securitization, and can include smaller locations (e.g. Luxembourg), or city-states (e.g. Singapore). The IMF notes an overlap between RFCs and OFCs (e.g. Hong Kong and Singapore are both OFCs and RFCs). Since 2010, academics consider OFCs synonymous with tax havens.[lower-alpha 4]

Background

Financial centres are locations with a concentration of participants in banking, asset management, insurance or financial markets with venues and supporting services for these activities to take place.[5] Participants can include financial intermediaries (such as banks and brokers), institutional investors (such as investment managers, pension funds, insurers, hedge funds), and issuers (such as companies and governments). Trading activity can take place on venues such as exchanges and involve clearing houses, although many transactions take place over-the-counter (OTC), that is directly between participants. Financial centres usually host companies that offer a wide range of financial services, for example relating to mergers and acquisitions, public offerings, or corporate actions; or which participate in other areas of finance, such as private equity and reinsurance. Ancillary financial services include rating agencies, as well as provision of related professional services, particularly legal advisory and management accounting.[6]

Definitions

FSF–IMF approach

In April 2000, the Financial Stability Forum ("FSF"),[lower-alpha 5] concerned about OFCs on global financial stability produced a report listing 42 OFCs.[7] In June 2000, the IMF published a working paper on OFCs, but which also proposed a taxonomy on classifying the various types of global financial centres, which they listed as follows (with the description and examples they noted as typical of each category, also noted):[1]

  1. International Financial Centre ("IFC"). Described by the IMF as being large international full–service centres with advanced settlement and payments systems, supporting large domestic economies, with deep and liquid markets where both the sources and uses of funds are diverse, and where legal and regulatory frameworks are adequate to safeguard the integrity of principal–agent relationships and supervisory functions. IFCs generally borrow short–term from non–residents and lend long–term to non–residents. In terms of assets, London is the largest and most established such centre, followed by New York, the difference being that the proportion of international to domestic business is much greater in the former. Examples cited by the IMF were: London, New York and Tokyo;
  2. Regional Financial Center ("RFC"). The IMF noted that RFCs, like IFCs, have developed financial markets and infrastructure and intermediate funds in and out of their region, but in contrast to IFCs, have relatively small domestic economies. Examples cited by the IMF were: Hong Kong, Singapore, and Luxembourg;
  3. Offshore Financial Centre ("OFC"). The IMF noted that OFCs are usually smaller, and provide more specialist services, however, OFCs still ranged from centres that provide specialist and skilled activities, attractive to major financial institutions, and more lightly regulated centres that provide services that are almost entirely tax driven, and have very limited resources to support financial intermediation. The IMF listed 46 OFCs in 2000, the largest of which was Ireland, the Caribbean (includes the Cayman Islands, and the British Virgin Islands), Hong Kong, Singapore and Luxembourg.

The IMF noted that the three categories were not mutually exclusive and that various locations could fall under the definition of an OFC and an RFC, in particular (e.g. Singapore and Hong Kong were cited).[1]

Rationale for OFCs
See also: Offshore financial centre

The IMF noted that OFCs could be set up for legitimate purposes (listing various reasons), but also for what the IMF called dubious purposes, citing tax evasion and money–laundering. In 2007, the IMF produced the following definition of an OFC: a country or jurisdiction that provides financial services to nonresidents on a scale that is incommensurate with the size and the financing of its domestic economy.[8] The FSF annual reports on global shadow banking use the IMF definition to track the OFCs with the largest financial centres relative to their domestic economies.[9]

Conduit and Sink OFCs: Mapping the links between financial centres

Progress from 2000 onwards from IMF–OECD–FATF initiatives on common standards, regulatory compliance, and banking transparency, has reduced the regulatory attraction of OFCs over IFCs and RFCs. Since 2010, academics considered the services of OFCs to be synonymous with tax havens, and use the term OFC and tax haven interchangeably (e.g. the academic lists of tax havens include all the FSF–IMF OFCs).[3][4]

In July 2017, a study by the University of Amsterdam's CORPNET group, broke down the definition of an OFC into two subgroups, Conduit and Sink OFCs:[10]

  • 24 Sink OFCs: jurisdictions in which a disproportionate amount of value disappears from the economic system (e.g. the traditional tax havens).
  • 5 Conduit OFCs: jurisdictions through which a disproportionate amount of value moves toward Sink OFCs (e.g. the corporate–focused tax havens)
    (Conduits are: Netherlands, United Kingdom, Switzerland, Singapore and Ireland)

Sink OFCs rely on Conduit OFCs to re–route funds from high–tax locations using base erosion and profit shifting ("BEPS") tax planning tools, which are encoded, and accepted, in the Conduit OFC's extensive networks of global bilateral tax treaties. Because Sink OFCs are more closely associated with traditional tax havens, they tend to have more limited treaty networks and access to global higher–tax locations.

Rankings

Prior to the 1960s, there is little data available to rank financial centres.[11]:1 In recent years many rankings have been developed and published. Two of the most relevant are the Global Financial Centres Index and the Xinhua–Dow Jones International Financial Centres Development Index.[12]

Global Financial Centres Index (2007–ongoing)
Main article: Global Financial Centres Index
The Central District of Hong Kong, one of the main global financial centres located in East Asia, seen from the Peak.
The Lujiazui financial district in Shanghai, which has been categorised as a "broad and deep global leader" by the Global Financial Centres Index.

The Global Financial Centres Index ("GFCI") is compiled semi-annually by the London-based think tank Z/Yen in conjunction with the Shenzhen-based think tank China Development Institute.[13] As of March 2020, the top ten global financial centres per the GFCI article containing a ranked list of 108 financial centres were:[14]

Rank
Centre
 Rating
1 New York City 769
2 London 742
3 Tokyo 741
4 Shanghai 740
5 Singapore 738
6 Hong Kong 737
7 Beijing 734
8 San Francisco 732
9 Geneva 729
10 Los Angeles 723

Xinhua–Dow Jones Index (2010–2014)
Frankfurt's banking district, home to various global and European bank headquarters. The district houses the main German stock exchange and many EU and German regulators.

The Xinhua–Dow Jones International Financial Centers Development Index was compiled annually by the Xinhua News Agency of China with the Chicago Mercantile Exchange and Dow Jones & Company of the United States from 2010 to 2014. During that time New York was the top-ranked centre.

According to the 2014 Xinhua–Dow Jones International Financial Centres Development Index (IFCD), the top ten financial centres in the world were:[15]

Rank Change
Centre
 Rating
1 New York City 87.72
2 LondonĆ 86.64
3 1 Tokyo 84.57
4 1 SingaporeĆ 77.23
5 2 Hong Kongć 77.10
5 Shanghai 77.10
7 Paris 64.83
8 Frankfurt 60.27
9 2 Beijing 59.98
10 1 Chicago 58.22

(Δ) Appears on the FSF–IMF Offshore Financial Centre (OFC) Lists.
(†) Also appears as one of the top 5 Conduit OFC, in CORPNET's 2017 research; or
(‡) Also appears as one of the top 5 Sink OFC, in CORPNET's 2017 research.

Examples

Old finance centers such as Amsterdam, London, Paris, and New York have long histories.[16][17] Today there is a diverse range of financial centres worldwide.[18] While New York and London often stand out as the leading global financial centres,[19][20] other established financial centres provide significant competition and several newer financial centres are developing.[21] Despite this proliferation of financial centres, academics have discussed evidence showing increasing concentration of financial activity in the largest national and international financial centres in the 21st century.[22]:24–34 Others have discussed the ongoing dominance of New York and London, and the role linkages between these two financial centres played in the financial crisis of 2007–08.[23]

Comparisons of financial centres focus on their history, role and significance in serving national, regional and international financial activity. Each centre's offering includes differing legal, tax and regulatory environments.[24] One journalist suggested three factors for success as a financial city: "a pool of capital to lend or invest; a decent legal and taxation framework; and high-quality human resources".[25]

Major IMF IFCs

New York, London, and Tokyo are in every list of major IFCs. Some of the major RFCs (see below), such as Paris, Frankfurt, Chicago, and Shanghai appear as IFCs in some lists.

The New York Stock Exchange on Wall Street, the world's largest stock exchange by listed capitalisation.[26]
  • New York City. Since the middle of the 20th century, New York City, represented by Wall Street in Manhattan's Financial District, has been described as a leading financial centre.[11]:1[22]:25[23]:4–5 Over the past few decades, with the rise of a multipolar world with new regional powers and global capitalism, numerous financial centres have challenged Wall Street, particularly London and several in Asia, which some analysts believe will be the focus of new worldwide growth.[27]:39–49[28] One source described New York as extending its lead as the world's centre of finance in September 2018; according to Reuters, the think-tank New Financial concluded the "raw" value of domestic and international financial activity like managing assets and issuing equity underscored the position of New York as the world's leading financial centre.[29]
New York City remains the largest centre for trading in public equity and debt capital markets, driven in part by the size and financial development of the U.S. economy.[27]:31–32[30] The NYSE and NASDAQ are the two largest stock exchanges in the world.[31] New York also leads in hedge fund management; private equity; and the monetary volume of mergers and acquisitions. Several investment banks and investment managers headquartered in New York City are important participants in other financial centres.[27]:34–35 The New York Federal Reserve Bank, the largest within the Federal Reserve System, regulates financial institutions and implements U.S. monetary policy,[32][33] which in turn influences the world's economy.[34][35] The three major global credit rating agencies – Standard and Poor's, Moody's Investor Service, and Fitch Ratings – are headquartered or co–headquartered in New York City, with Fitch being co–headquartered in London.
The London Stock Exchange in the City of London, the largest exchange in Europe by capitalisation.[31]
  • London. London has been a leading international financial centre since the 19th century, acting as a centre of lending and investment around the world.[11]:74–75[36]:149 English contract law was adopted widely for international finance, with legal services provided in London.[37] Financial institutions located there provided services internationally such as Lloyd's of London (founded 1686) for insurance and the Baltic Exchange (founded 1744) for shipping.[38] During the 20th century London played an important role in the development of new financial products such as the Eurodollar and Eurobonds in the 1960s, international asset management and international equities trading in the 1980s, and derivatives in the 1990s.[16]:13[6]:6,12–13,88–9[39]
London continues to maintain a leading position as a financial centre in the 21st century, and maintains the largest trade surplus in financial services around the world.[40][41][42] However, like New York, it faces new competitors including fast-rising eastern financial centres such as Hong Kong and Shanghai. London is the largest centre for derivatives markets,[43] foreign exchange markets,[44] money markets,[45] issuance of international debt securities,[46] international insurance,[47] trading in gold, silver and base metals through the London bullion market and London Metal Exchange,[48] and international bank lending.[6]:2[39][49] London benefits from its position between the Asia and U.S. time zones,[50] and has benefited from its location within the European Union,[51]:1 though this may end following the outcome of the Brexit referendum of 2016 and the decision of the United Kingdom to leave the European Union. As well as the London Stock Exchange, the Bank of England, the second oldest central bank, is in London, although the European Banking Authority moved to Paris after Brexit.[52][53]
The Tokyo Stock Exchange, located in Nihonbashi-Kabutocho, Tokyo, Japan, is the largest stock exchange in Asia.[31]
  • Tokyo. One report suggests that Japanese authorities are working on plans to transform Tokyo but have met with mixed success, noting that "initial drafts suggest that Japan's economic specialists are having trouble figuring out the secret of the Western financial centres' success."[54] Efforts include more English-speaking restaurants and services and the building of many new office buildings in Tokyo, but more powerful stimuli such as lower taxes have been neglected and a relative aversion to finance remains prevalent in Japan.[54] Tokyo emerged as a major financial centre in the 1980s as the Japanese economy became one of the largest in the world.[11]:1 As a financial centre, Tokyo has good links with New York City and London.[55][56]

Major IMF OFCs
See also: Conduit and Sink OFCs

These centres appear in all FSF–IMF lists of OFCs and, bar the Caribbean OFCs of the Cayman Islands, the British Virgin Islands, and Bermuda, represent all the major OFCs. Some also appear as RFCs in various lists, particularly Hong Kong, and Singapore. They also appear on most lists of major tax havens, and on lists of the largest Conduit and Sink OFCs in the world.

  • Amsterdam. Amsterdam is well known for the size of its pension fund market. It is also a centre for banking and trading activities.[57] Amsterdam was a prominent financial centre in Europe in the 17th and 18th centuries and several of the innovations developed there were transported to London.[6]:24 In June 2017, a study published in Nature ranked the Netherlands as the world's largest Conduit OFC, a term use to describe the re-routing of fund flows to tax havens.[10][58][59]
  • Dublin. Dublin (via its International Financial Services Centre, "IFSC"), is a specialised financial services centre with a focus on fund administration and domiciling, fund management, custodial activities and aircraft leasing.[60] It is the largest securitisation location in the EU–28,[61][62][63] and the second largest domicile for investment funds, particularly alternative investment funds, after Luxembourg. Many of the funds domiciled and managed in Dublin are at the instruction of investment managers in larger Asset Management jurisdictions such as London, Frankfurt, New York and Luxembourg.[51]:5–6 Dublin's advanced BEPS tax tools, for example the double Irish, the single malt, and the capital allowances for intangible assets ("CAIA") tools, have led the economist Gabriel Zucman to judge Ireland to be the largest corporate tax haven by virtue of its use as a conduit OFC.[64][65][66]
The International Finance Centre in Hong Kong opened in 2003.
  • Hong Kong. As a financial centre, Hong Kong has strong links with London and New York City.[23]:10–11 It developed its financial services industry while a British territory and its present legal system, defined in Hong Kong Basic Law, is based on English law. In 1997, Hong Kong became a Special Administrative Region of the People's Republic of China, retaining its laws and a high degree of autonomy for at least 50 years after the transfer. Most of the world's 100 largest banks have a presence in the city.[67] Hong Kong is a leading location for initial public offerings, competing with New York City,[68] and also for merger and acquisition activity.[69]
  • Luxembourg. Luxembourg is a specialised financial services centre that is the largest location for investment fund domiciliation in Europe, and second in the world after the United States. Many of the funds domiciled in Luxembourg are managed in London.[51]:5–6 Luxembourg is the leading private banking centre in the Eurozone and the largest captive reinsurance centre in Europe. 143 banks from 28 different countries are established in Luxembourg.[70] The country is also the third largest renminbi centre in the world by numbers, in certain activities such as deposits, loans, bond listing and investment funds.[71] Three of the largest Chinese banks have their European hub in Luxembourg (ICBC, Bank of China, China Construction Bank).
  • Singapore. With its strong links with London,[72] Singapore has developed into the Asia region's largest centre for foreign exchange and commodity trading, as well as a growing wealth management hub.[73] Other than Tokyo, it is one of the main centres for fixed income trading in Asia. However, the market capitalisation of its stock exchange has been falling since 2014 and several major companies plan to delist.[74]
  • Zurich. Zurich is a significant centre for banking, asset management including provision of alternative investment products, and insurance.[75][76][77] Since Switzerland is not a member of the European Union, Zurich is not directly subject to EU regulation.

Major IMF RFCs

In some lists, RFCs such as Paris, Frankfurt, Chicago, and Shanghai appear as IFCs, however, they do not appear in all lists. They are certainly major RFCs.

  • Dubai. The second largest emirate in the United Arab Emirates is a growing centre for finance in the Middle East, including for Islamic finance. Its emergence as a financial centre is relatively recent, although commercial banking activity in the UAE became established in the second half of the 20th century (the first commercial bank in Dubai was British Bank of the Middle East in 1946, and the first domestic commercial bank was the National Bank of Dubai established in 1963).[79]
The Frankfurt Stock Exchange building, which dates back to 1879.[80]
  • Frankfurt. Frankfurt attracts many foreign banks which maintain offices in the city. It is the seat of Deutsche Börse, one of the leading stock exchanges and derivatives markets operators, and the European Central Bank, which sets the monetary policy for the single European currency, the euro; in addition, in 2014 the European Central Bank took over responsibility for banking supervision for the 18 countries which form the Eurozone. It is also the seat of Deutsche Bundesbank, the German central bank,[81] as well as of EIOPA, the EU's supervisory authority for insurances and occupational pension systems.[82]
Frankfurt has been the financial centre of Germany since the second half of the 20th century as it was before the mid-19th century. Berlin held the position during the intervening period, focusing on lending to European countries while London focused on lending to the Americas and Asia.[83][84]
Bolsa de Madrid. Madrid's stock exchange is the world's second-largest in number of listed companies.[85]
  • Madrid. Madrid is the headquarters to the Spanish company Bolsas y Mercados Españoles, which owns the four stock exchanges in Spain, the largest being the Bolsa de Madrid. Trading of equities, derivatives and fixed income securities are linked through the Madrid-based electronic Spanish Stock Market Interconnection System (SIBE), handling more than 90% of all financial transactions. Madrid ranks fourth in European equities market capitalisation, and Madrid's stock exchange is second in terms of number of listed companies, just behind New York Stock Exchange (NYSE plus NASDAQ).[86] As a financial centre, Madrid has extensive links with Latin America and acts as a gateway for many Latin American financial firms to access the EU banking and financial markets.[87]:6–7
  • Milan. Italy's main centre of banking and finance. It hosts the Borsa Italiana stock exchange, one of the larger stock exchanges in Europe, which is now part of the London Stock Exchange Group.[88]:245
  • Paris. Alongside equity trading on the Paris Stock Exchange, there is futures and options trading, insurance, corporate banking and asset management taking place in Paris.[89] The city is home to the Banque de France and the European Securities and Markets Authority. Paris has been a major financial centre since the 19th century.[11]:1 The European Banking Authority is also moving to Paris in March 2019 following Brexit.[90]
  • Seoul. South Korea's capital has developed significantly as a financial centre since the late-2000s recession. In 2009, Seoul ranked 53rd among global financial centres; by 2012, Seoul had risen to number 9.[91] Seoul has continued to build office space with the completion of the International Financial Center Seoul in 2013. It ranked 7th in the 2015 Global Financial Centres Index, recording the highest growth in rating among the top ten cities.
  • Shanghai. Official efforts have been directed to making Pudong a financial leader by 2010.[92] Efforts during the 1990s were mixed, but in the early 21st century, Shanghai gained ground. Factors such as a "protective banking sector" and a "highly restricted capital market" have held the city back, according to one analysis in 2009 in China Daily.[93] Shanghai has done well in terms of market capitalisation but it needs to "attract an army of money managers, lawyers, accountants, actuaries, brokers and other professionals, Chinese and foreign" to enable it to compete with New York and London.[94] China is generating tremendous new capital, which makes it easier to stage initial public offerings of state-owned companies in places like Shanghai.[95]
Sydney's northern CBD serves as the financial and banking hub of the city
  • Sydney. Australia's most populous city is a financial and business services hub not only for Australia but for the Asia-Pacific region. Sydney competes quite closely with other Asia Pacific hubs, however it concentrates a greater portion of Australian-based business in terms of clients and services. Sydney is home to two of Australia's four largest banks, the Commonwealth Bank of Australia and Westpac Banking Corporation, both headquartered in the Sydney CBD. Sydney is also home to 12 of the top 15 asset managers in Australia, Melbourne, on the other hand, tends to concentrate more of the Australian superannuation funds (pension funds). Sydney is using the large Barangaroo development project on its harbour to further position itself as an Asian Pacific hub.[96] Sydney is also home to the Australian Securities Exchange and an array of brokerage banks which are either headquartered or regionally based in Sydney including Australia's largest investment bank Macquarie Group.[97][98]
  • Toronto. The city is a leading market for Canada's largest financial institutions and large insurance companies. It has also become one of the fastest growing financial centres following the late-2000s recession, helped by the stability of the Canadian banking system. Most of the financial industry is concentrated along Bay Street, where the Toronto Stock Exchange is also located.[99]
  • Others. Mumbai is an emerging financial centre, which also provides international support services to London and other financial centres.[100][101][102] Cities such as São Paulo, Mexico City and Johannesburg and other "would-be hubs" lack liquidity and the "skills base", according to one source.[25] Financial industries in countries and regions such as the Indian subcontinent and Malaysia require not only well-trained people but the "whole institutional infrastructure of laws, regulations, contracts, trust and disclosure" which takes time to happen.[25]

History
See also: History of banking

Pre 17th century

Primitive financial centres started in the 11th century in the Kingdom of England at the annual fair of St. Giles and in the Kingdom of Germany at the Frankfurt autumn fair, then developed in medieval France during the Champaign Fairs.[103][80]

Italian city-states
See also: Economic history of Italy, Economic history of Venice, and History of Genoa

The first real international financial center was the City State of Venice which slowly emerged from the 9th century to its peak in the 14th century.[103] Tradable bonds as a commonly used type of security, were invented by the Italian city-states (such as Venice and Genoa) of the late medieval and early Renaissance periods while Florence can be said to be the birthplace of double-entry bookkeeping from the publication and proliferation of the work of Luca Pacioli.

The Low Countries
For the origin and history of the bourse in general (not to be confused with the concept of the stock exchange and stock market), see exchange (organized market)

In the sixteenth century, the overall economic supremacy of the Italian city-states gradually waned, and the centre of financial activities in Europe shifted to the Low Countries, first to Bruges, and later to Antwerp and Amsterdam which acted as Entrepôt cities. They also became important centres of financial innovation, capital accumulation and investment.

17th–18th centuries

Rise of Amsterdam
See also: Financial history of the Dutch Republic, Economic history of the Dutch Republic, Dutch Financial Revolution, and History of Amsterdam
17th-century etching of the Oost-Indisch Huis (Dutch for "East India House"), the headquarters of the United East India Company (VOC) in Amsterdam. Considered by many to be the first historical model of the multinational corporation in its modern sense, the VOC was also the first company to be listed on a formal stock exchange. In other words, the VOC was the world's first publicly listed company (or publicly traded company).
Courtyard of the Amsterdam Stock Exchange (Beurs van Hendrick de Keyser in Dutch), the world's first formal stock exchange. The Amsterdam Stock Exchange was the leading centre of global securities markets in the 17th century.
The Dam Square in Amsterdam, by Gerrit Adriaensz Berckheyde, c. 1660. In the picture of the centre of highly cosmopolitan and tolerant Amsterdam, Muslim/Oriental figures (possibly Ottoman or Moroccan merchants) are shown negotiating. The 17th-century Dutch institutional innovations helped lay the foundations for modern-day international financial centres that now dominate the global financial system.[104][105]

In the 17th century, Amsterdam became the leading commercial and financial centre. It held this position for more than a century,[106][107][108] and was the first modern model of an international financial centre.[109] As Richard Sylla (2015) noted, "In modern history, several nations had what some of us call financial revolutions. These can be thought of as creating in a short period of time all the key components of a modern financial system. The first was the Dutch Republic four centuries ago."[110][111][112] Amsterdam – unlike its predecessors such as Bruges, Antwerp, Genoa, and Venice – controlled crucial resources and markets directly, sending its fleets to all quarters of the world.[113]

During their Golden Age, the Dutch were responsible for three major institutional innovations in economic, financial and business history of the world:

  • The foundation of the Dutch East India Company (VOC), the world's first publicly listed company[114][115] and an early pioneering model of the multinational corporation,[116][117][118][119] in 1602. The birth of the VOC is often considered to be the official beginning of corporate-led globalization with the rise of modern corporations (multinational corporations in particular) as a highly significant socio-politico-economic force that affect human lives in every corner of the world today. As the first company to be listed on an official stock exchange, the VOC was the first company to issue stock and bonds to the general public. With its pioneering features, the VOC is generally considered a major institutional breakthrough and the model for modern corporations (large-scale business enterprises in particular). It was the first precursor to modern multinational corporations.
  • The establishment of the Amsterdam Stock Exchange (or Beurs van Hendrick de Keyser in Dutch), the world's first official stock exchange,[lower-alpha 6] along with the birth of the first fully functioning capital market in the early 1600s.[121] While the Italian city-states produced the first transferable government bonds, they didn't develop the other ingredient necessary to produce the fully fledged capital market in its modern sense: a formal stock market.[122][123][124] The Dutch were the firsts to use a fully fledged capital market (including the bond market and stock market) to finance public companies (such as the VOC and WIC). This was a precedent for the global securities market in its modern form. In the early 1600s the VOC established an exchange in Amsterdam where VOC stock and bonds could be traded in a secondary market. The establishment of the Amsterdam Stock Exchange (Beurs van Hendrick de Keyser) by the VOC, has long been recognized as the origin of modern-day stock exchanges[125][126] that specialize in creating and sustaining secondary markets in the securities issued by corporations. The process of buying and selling shares (of stock) in the VOC became the basis of the first formal stock market.[127][128] The Dutch pioneered stock futures, stock options, short selling, bear raids, debt-equity swaps, and other speculative instruments. Amsterdam businessman Joseph de la Vega's Confusion of Confusions (1688) was the earliest book about stock trading. Early techniques of stock-market manipulation occurred.
  • The establishment of the Bank of Amsterdam (Amsterdamsche Wisselbank), often considered to be the first historical model of the central bank,[129][130][131] in 1609. The birth of the Amsterdamsche Wisselbank led to the introduction of the concept of bank money. Along with a number of subsidiary local banks, it performed many functions of a central banking system.[132][133][134][135][136] It occupied a central position in the financial world of its day, providing an effective, efficient and trusted system for national and international payments, and introduced the first ever international reserve currency, the bank guilder.[137] Lucien Gillard calls it the European guilder (le florin européen),[138] and Adam Smith devotes many pages to explaining how the bank guilder works (Smith 1776: 446-455). The model of the Wisselbank as a state bank was adapted throughout Europe, including the Bank of Sweden (1668) and the Bank of England (1694).

In many respects, the 17th-century Dutch financial innovations helped shape the foundations of modern-day financial system of the world,[139][140][141] and greatly influenced the financial history of many English-speaking countries (especially the United Kingdom and United States)[142][143] in subsequent centuries.

By the early 1800s, London officially replaced Amsterdam as the world's leading financial centre. In his book Capitals of Capital (2010), Youssef Cassis argues that the decline and fall of Amsterdam, as the world's foremost financial capital, was one of the most dramatic events in history of global finance.[144]

19th–21st centuries
See also: Global financial system § History of international financial architecture

London and Paris were the world's only prominent financial centers throughout most of the 19th century.[11]:1 After 1870, Berlin and New York grew to become major financial centres mainly serving their national economies. An array of smaller international financial centers found market niches, such as Amsterdam, Brussels, Zurich, and Geneva. London remained the leading international financial center in the four decades leading up to World War I.[11]:74–75[16]:12–15 Since then, New York and London have developed leading positions in different activities and some non-Western financial centres have grown in prominence, notably Tokyo, Hong Kong, Singapore and Shanghai.

Rise of London
See also: Economic history of the United Kingdom, City of London, History of London, and Economy of London

London has been a leading international financial centre since the 19th century, acting as a centre of lending and investment around the world.[11]:74–75[145]:149 English contract law was adopted widely for international finance, with legal services provided in London.[146] Financial institutions located there provided services internationally such as Lloyd's of London (founded 1686) for insurance and the Baltic Exchange (founded 1744) for shipping.[147] During the 20th century London played an important role in the development of new financial products such as the Eurodollar and Eurobonds in the 1960s, international asset management and international equities trading in the 1980s, and derivatives in the 1990s.[16]:13[6]:6,12–13,88–9[39]

London continues to maintain a leading position as a financial centre in the 21st century, and maintains the largest trade surplus in financial services around the world.[148][149][150] However, like New York, it faces new competitors including fast-rising eastern financial centres such as Hong Kong and Shanghai. London is the largest centre for derivatives markets,[151] foreign exchange markets,[152] money markets,[153] issuance of international debt securities,[154] international insurance,[155] trading in gold, silver and base metals through the London bullion market and London Metal Exchange,[156] and international bank lending.[6]:2[39][157] London benefits from its position between the Asia and U.S. time zones,[158] and has benefited from its location within the European Union,[51]:1 though this may end following the outcome of the Brexit referendum of 2016 and the decision of the United Kingdom to leave the European Union. As well as the London Stock Exchange, the Bank of England, the second oldest central bank, is in London, although the European Banking Authority moved to Paris after Brexit.[159][160]

Rise of New York
See also: Economic history of the United States; Wall Street; Financial District, Manhattan; History of New York City; and Economy of New York City

Since the middle of the 20th century, New York City, represented by Wall Street in Manhattan's Financial District, has been described as a leading financial centre.[11]:1[22]:25[23]:4–5 Over the past few decades, with the rise of a multipolar world with new regional powers and global capitalism, numerous financial centres have challenged Wall Street, particularly London and several in Asia, which some analysts believe will be the focus of new worldwide growth.[27]:39–49[161] One source described New York as extending its lead as the world's centre of finance in September 2018; according to Reuters, the think-tank New Financial concluded the "raw" value of domestic and international financial activity like managing assets and issuing equity underscored the position of New York as the world's leading financial centre.[29]

New York City remains the largest centre for trading in public equity and debt capital markets, driven in part by the size and financial development of the U.S. economy.[27]:31–32[162] The NYSE and NASDAQ are the two largest stock exchanges in the world.[31] New York also leads in hedge fund management; private equity; and the monetary volume of mergers and acquisitions. Several investment banks and investment managers headquartered in New York City are important participants in other financial centres.[27]:34–35 The New York Federal Reserve Bank, the largest within the Federal Reserve System, regulates financial institutions and implements U.S. monetary policy,[32][163] which in turn influences the world's economy.[164][165] The three major global credit rating agencies – Standard and Poor's, Moody's Investor Service, and Fitch Ratings – are headquartered or co–headquartered in New York City, with Fitch being co–headquartered in London.

Rise of Asian centres
See also: Japanese economic miracle, Four Asian Tigers, Chinese economic reform, and Conduit and Sink OFCs

In Asia, Tokyo emerged as a major financial centre in the 1980s as the Japanese economy became one of the largest in the world.[11]:1 Hong Kong and Singapore developed soon after leveraging their links with London and Britain.[23]:10–11[72] In the 21st century, other centres have grown including Toronto, Sydney, Seoul and Shanghai. Dubai has become a centre for finance in the Middle East, including for Islamic finance. The rapid rise of India has enabled Mumbai to become an emerging financial centre. India is also making an International Financial Center GIFT City from scratch. GIFT city is now functional and has already won the crown of fastest emerging International Finance Center of South Asia. Linked to the rise of these new IFCs, has seen the rise of "partner OFCs" (offshore tax-havens to which funds are routed), such as Taiwan (a major Sink OFC for Asia, and 7th largest global Sink OFC), Mauritius (a major Sink OFC for South Asia, especially India, and Africa, and the 9th largest global Sink OFC).

The private nationwide financial system in China was first developed by the Shanxi merchants, with the creation of so-called "draft banks". The first draft bank Rishengchang was created in 1823 in Pingyao. Some large draft banks had branches in Russia, Mongolia and Japan to facilitate the international trade. Throughout the nineteenth century, the central Shanxi region became the de facto financial centres of Qing China. With the fall of Qing Dynasty, the financial centers gradually shifted to Shanghai, mainly due to its geographical location at the estuary of the Yangtze River and to the control of customs in China. After the establishment of People's Republic of China, the financial centres in China today are Beijing, Shanghai, and Shenzhen.

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gollark: Apiowhat?
gollark: A square wave is apparently in some confusing way equivalent to the sum of an infinite number of sine waves, so you get horrible interference, and it's low-power so the range is terrible.
gollark: It can generate ~100MHz square waves and you can connect up an antenna, which is *basically* what a radio transmitter would do but stupider and worse.

See also

Notes
  1. The IMF definition, and examples, from June 2000.[1]
  2. "Offshore" does not refer to the location of the OFC (i.e. many FSF–IMF OFCs, such as Luxembourg and Hong Kong, are located "onshore"), but to the fact that the largest users of the OFC are nonresident (i.e. the users are non-domestic).
  3. Tax–neutral is a term that OFCs use to describe legal structures where the OFC does not levy any taxes, duties or VAT on fund flows into, during, or exiting (e.g. no withholding taxes) the vehicle. Major examples being the Irish Qualifying investor alternative investment fund (QIAIF), and the Cayman Islands SPC.
  4. This is since circa 2010, after the post 2000 IMF–OECD–FATF initiatives on common standards, regulatory compliance, and banking transparency, which had significantly weakened the regulatory attraction of OFCs over IFCs and RFCs.[3][4]
  5. The FSF is a group consisting of major national financial authorities such as finance ministries, central bankers, and international financial bodies
  6. The concept of the bourse (or the exchange) was 'invented' in the medieval Low Countries, most notably in predominantly Dutch-speaking cities like Bruges and Antwerp, before the birth of formal stock exchanges in the 17th century. From Flemish cities the term 'beurs' spread to other European states where it was corrupted into 'bourse', 'borsa', 'bolsa', 'börse', etc. In Britain, too, the term 'bourse' was used between 1550 and 1775, eventually giving way to the term 'royal exchange'. Until the early 1600s, a bourse was not exactly a stock exchange in its modern sense. With the founding of the Dutch East India Company (VOC) in 1602 and the rise of Dutch capital markets in the early 17th century, the 'old' bourse (a place to trade commodities, government and municipal bonds) found a new purpose – a formal exchange that specialize in creating and sustaining secondary markets in the securities (such as bonds and shares of stock) issued by corporations – or a stock exchange as we know it today.[120]

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