The Rise-and-Fall of Leading International Financial Centers: Factors and Application

Abstract

This Note will look at the role of four broad factors that correspond with the rise-and-fall cycles among leading international financial centers. The four factors are: trust in a financial center’s abilities; the central banking and monetary policy systems of the center’s home nation; the home nation’s landscape of financial policy and regulation; and the overall stability of the financial center itself. First, this Note will undertake a broad historical survey of the shifts in prominence from Amsterdam to London, from London to New York, and from New York back to London to define the scope of these factors through analyzing how they have manifested and evolved over time. In order to further understand the limits of these factors, this Note will also analyze two historical instances where two cities vied for the position of the leading international financial center, Paris versus London and Tokyo versus New York, and no corresponding shift occurred, despite the manifestation of some of the factors. In addition, to understand the role of politics in influencing these factors, this Note will also consider the shift between the financial centers of Frankfurt and Berlin during the nineteenth century. After defining the scope of the factors through this broad historical survey, this Note will analyze the presence of these factors in the modern international financial system in light of Brexit in order to assess their predictive capabilities. Lastly, this Note will consider the future relevance of international financial centers as a critical structure within the international financial system, and whether the factors might shed any light on the likelihood that emerging disruptive technologies might render international financial centers obsolete.