Some analysts believe that London will continue to rule the global financial markets long after its exit from the European Union colloquially known as the Brexit.
Several analysts bet on the city’s resilience in the face of disaster while they caution that the only thing ‘The Old Smoke’ should be afraid of are its own regulators’ poor policies.
Analysts noted that it isn’t the first time London’s status as leading global financial center has been threatened. In the past, the city continued to provide financial services to investors worldwide regardless of the situation of its economy.
Britain’s capital city has emerged as a global financial hub between the mid-19th Century and WW I. But despite external circumstance the city’s financial institution based their business on financial services and products that had little to do with the country’s economy including quotes on international securities, cargo insurance, and bills of exchange for global markets.
London banks often relied on foreign experts to boost their communications expertise and connections. But the city faced the greatest disaster but managed survived during the WWII and the period immediately after it.
The post-war London was a wreck on many aspects: financial, social, economic, psychological. The sterling was crushed by an extremely strong dollar; oversea investments were reduced to zero; there was nothing left for export trade; the industry was reduced to pieces, while the debts to the U.S. and its colonies were mind-numbing.
After the WWII the financial sector was also in ruin, and its situation was complicated by internal policies such as bans on futures trading and tight exchange supervision. Furthermore, many experts lost their lives during the war so it was a shortage of specialized workforce that could get the city back on its feet.
But despite the dark context, the city re-emerged as a global financial hub in a several decades. British bankers bet on their ideas and innovation to restart the engines. For instance, Siegmund Warburg fathered the Eurobond, a profitable financial instrument traded and issues by states other than the country where the Eurobond is denominated.
Analysts also noted that London made a giant step forward due to Margaret Thatcher’s financial reforms in the 1980s, which deregulated the financial operations in the city even more. A journalist described the outcome of the reforms as a “creative destruction” that removed regulatory restrictions that had hindered the way bankers did business in London.
The reforms’ also contributed to London’s current ranking as the world’s first or second financial hub.
Image Source: Wikimedia