One of the beacons of Hong Kong’s future is London
Since the “big bang” in its financial industry in the mid-1980s, which was dominated by “de-regulation”, London has been able to seize the opportunity of “petrodollars” flowing into Europe and gradually develop into the world’s largest offshore Dollar Center.
Author: GUDORDI | 2023-11-29
The Great Fire of London in 1666 devastated London so severely that it was thought that London would no longer be of international importance. (Shutterstock)
Misfortunes are where blessings depend, and blessings are where misfortunes lie.
──Lao Tzu in “Tao Te Ching”
Last time, the author mentioned that Venice, Florence, Vienna, Amsterdam, etc. were all once prominent international trade and financial centers. The plague and the four-day fire of 1665-66 hit London hard and seriously. Many people concluded that London would no longer have any international importance. However, subsequent developments have shown that London not only managed to survive, but also surpassed all European cities and continued to dominate the world’s largest financial center for 200 years. Therefore, London’s experience is truly worth pondering.
London relies on hard work to become an international financial center
As the author has emphasized many times in this column, the essence of an international financial center is the “spontaneous order” often emphasized by the master of political economy FA Hayek, which basically cannot be created artificially. It is not impossible to establish some international financial center indicators in the minds of ordinary people within a period of time, but such international financial centers generally have little vitality. Basically, it is much easier to become a commercial and trade center, a shipping center, or even a banking center than to become an international financial center. However, as the saying goes, “the distance tells the story”, if a place does not have the cultural genes to be an international financial center (related Genes are actually very special and do not appear easily), and most of their status can only be maintained for a period of time.
From this perspective, the most noteworthy thing about London is that its status as an international financial center is achieved by its own “hard work”. Or, more appropriately, London’s status as an international financial center is achieved by countless people from all over the world. Talents and institutions have worked together to achieve this through the platform of London. This is the power of the “invisible hand” that Adam Smith refers to.
The road to the New York International Financial Center has the element of "wealth forces people to come"
Relatively speaking, the road to becoming an international financial center in New York is much easier. It can even be said that there is an element of “wealth forces people to come.” From a certain perspective, it is the development of the world situation that makes the United Kingdom seem to have surrendered London’s dominance as an international financial center to New York.
It is worth noting that the original financial center of the United States was in Philadelphia, and the first stock exchange and first bank in the United States were both in Philadelphia. Today, when many tourists go to Wall Street, they will be a little surprised. It turns out that the famous Wall Street is just a small street without any style. Basically, at the end of the 19th century, London was the big brother in the global financial industry, and New York was just a little brother, just like today’s emerging markets. One of the reasons why New York was able to gradually lead Philadelphia was because New York was a relatively small city compared to Philadelphia. Can cooperate with London.
The status of New York’s financial center continues to rise, which is believed to be related to the two world wars that severely damaged the British economy. The picture shows the lobby of the New York Stock Exchange in 1936. (Shutterstock)
However, with the development, New York’s status as a financial center continued to rise. One of the important reasons is believed to be that the two world wars severely damaged the British economy. It is worth noting that after World War II, the British pound was actually still the world’s reserve currency, and about 80% of the currencies held by global central banks were still British pounds (there were not many choices at the time). But I believe Keynes, Churchill and others knew very well that Britain’s economic strength is no longer what it used to be, and it is no longer capable of playing the role of the hegemon of the international financial center. This was the background of the 1944 Bretton Woods Conference that determined the order of the global economic, monetary and financial system after World War II.
It is worth pointing out that in history, the United States has been isolationist for most of its time, and it has never been very interested in matters on the European continent and other places. Keynes was one of the key figures in the content of the Bretton Woods Conference, and he was well aware of the problems that the inadequate post-World War I arrangements had caused for Europe and the global economy. Looking back today, the spirit of the entire Bretton Woods Conference was a bit like locking in the United States to use its economic strength to promote the recovery of global trade and the economic reconstruction of Europe, and ensuring that it would not return to the same situation as after the First World War. Isolationism. Therefore, at that time, 44 countries around the world pegged their currency values to the US dollar, and the United States also promised that each US dollar could be exchanged for 35 ounces of gold. In this way, the status of the U.S. dollar and New York in the global economy and financial markets was established.
London is able to seize the opportunity of “petrodollars” flowing into Europe and gradually become the most important and largest financial center in Europe. (Shutterstock)
The development of London’s financial industry is not entirely controlled by the British local economy.
Basically, the British economy has been in decline since World War II. However, despite this, since the “Big Bang” in its financial industry in the mid-1980s with “de-regulation” as the main theme, London has been able to grasp the inflow of “petrodollars” Taking advantage of Europe’s opportunities, it gradually developed into the world’s largest offshore U.S. dollar center and continued to expand into other financial areas. London has subsequently become the most important and largest financial center in Europe. Although the UK’s economic strength is not as good as Germany’s, London’s status in the financial industry is clearly ahead of Frankfurt. This shows that the development of London’s financial industry is not completely controlled by the British economy.
There is no doubt that Brexit has brought new challenges to London, but the catastrophic impact that many people expected has not yet occurred, at least so far. This shows that finance is a very special industry, and the logic and complexity of its development are Maybe it’s different from what most people understand. As the “Tao Te Ching” quoted at the beginning of this article points out, in matters in the human world, blessings and misfortunes often depend on each other, and the emergence of challenges or crises is not necessarily a bad thing. For Hong Kong’s future as an international financial center, London’s experience, as well as the opportunities and challenges London currently faces, are extremely important. Basically, the conclusion that this series of more than 40 articles hopes to draw is that there are several bright lights that can provide guidance on Hong Kong’s issues, and London is one of them. Next time, the author will further talk about the current global situation. Potential opportunities that the financial sector can bring to London and Hong Kong.
“Hong Kong’s Legendary Future” Series 43
Contact the author: Gudordi@proton.me
