Securing securities: political risk, sovereign debt, and the Anglo-American financial power transition

Under what conditions do countries lose their status as the leading global financial center? Some scholars argue that such shifts follow shortly after transitions in the distribution of other key capabilities (e.g. GDP), while others argue that path dependence or other more bespoke capabilities might be able to sustain financial leadership long after decline in other capabilities. This paper aims to understand the causes of the Anglo-American financial transition. I argue that the ability to manage political risk for investors is critical to the position of countries as financial entrepôts. In the case of British financial leadership, I argue that Britain’s position as an entrepôt hinged on its power projection capability, which enabled Britain to limit political risk for investors in ways that other states could not replicate. The gradual loss of those capabilities, in turn, saw Britain eventually become overshadowed by the United States. I support my claims with a TERGM analysis of the interwar sovereign debt network.