History

Pre 17th centuryedit

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.

Italian city-statesedit

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. 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 Countriesedit

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.citation needed

17th–18th centuriesedit

Rise of Amsterdamedit

In the 17th century, Amsterdam became the leading commercial and financial centre. It held this position for more than a century, and was the first modern model of an international financial centre. 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." 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.

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 and an early pioneering model of the multinational corporation, 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,e along with the birth of the first fully functioning capital market in the early 1600s. 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. 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 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. 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, 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. 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. Lucien Gillard calls it the European guilder (le florin européen), 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, and greatly influenced the financial history of many English-speaking countries (especially the United Kingdom and United States) 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.

19th–21st centuriesedit

London and Paris were the world's only prominent financial centers throughout most of the 19th century.: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.:74–75:12–15 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 Londonedit

London has been a leading international financial centre since the 19th century, acting as a centre of lending and investment around the world.:74–75:149 English contract law was adopted widely for international finance, with legal services provided in London. 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. 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.:13:6,12–13,88–9

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. 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, foreign exchange markets, money markets, issuance of international debt securities, international insurance, trading in gold, silver and base metals through the London bullion market and London Metal Exchange, and international bank lending.:2 London benefits from its position between the Asia and U.S. time zones, and has benefited from its location within the European Union,: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.

Rise of New Yorkedit

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.:1:25:4–5 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.:39–49 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.

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.:31–32 The NYSE and NASDAQ are the two largest stock exchanges in the world. 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.:34–35 The New York Federal Reserve Bank, the largest within the Federal Reserve System, regulates financial institutions and implements U.S. monetary policy, which in turn influences the world's economy. 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 centresedit

In Asia, Tokyo emerged as a major financial centre in the 1980s as the Japanese economy became one of the largest in the world.:1 Hong Kong and Singapore developed soon after leveraging their links with London and Britain.:10–11 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.