For many, the term “financial centre” usually conjures up a very specific selection of cities: London, New York, Singapore, Shanghai, Tokyo, etc. But how did these cities come to occupy such a place? How long have they held such a mantle? In this article, we will look into how these cities rose to prominence.

We have to go back to the Middle Ages, to the city-states of Northern Italy, before we get to something resembling modern banking. Venice was ideally situated to act as a hub for Mediterranean trade. Due to its close relations with the Byzantine Empire, it was able to trade wine, grain, salt from Southern Europe in exchange for silks and spices from Constantinople. Not only that, but they were able to do so while paying little or no customs in the process. Unsurprisingly, this would generate an enormous amount of wealth for the city-state and would carry on for centuries.

Thanks to the grain trade, many novel banking tools were developed. For example, farmers could take out a loan from a bank and use the money to sow their fields. Later on, the harvest would act as repayment for the loan. In this way, the bank essentially had future rights to the grain. The bank would then go on to collect payments for the as-of-yet unharvested grain from foreign trading ports, a template for futures contracts widely used in finance to this day. Insurance would also become ubiquitous around this time, ensuring the grain trade could persist despite the ever-present threats of floods, drought, pestilence and war. Happy days.

In the 15th century, the Byzantine Empire was forced out of Constantinople and the Ottoman Empire took its place. This would mark the start of the declining influence of Venice and surrounding areas. Trade with the East became more difficult during this time, but luckily the Gibraltar Strait would open up and with it, access to Northern European ports. The financial centre of Europe would gradually shift to the Flanders and Netherlands regions, which had even greater reach. Ports in the Low Countries had access to the Americas, West Africa, Japan and all other major trading hubs of the time.

Besides geographical reach, the Netherlands’ other strong advantage was that of financial innovation. These innovations resulted from the difficulty of international trade at the time. Trade voyages to the other side of the world were extremely expensive and wrought with peril. Building, supplying and staffing a ship was a barrier to entry only the deepest pockets could overcome. To mitigate the risk, the Dutch had a pretty neat solution. Instead of a single entity financing the whole voyage, the endeavour was divided into shares. Companies and investment firms could purchase these shares and in doing so, possess a partial stake in the enterprise. In the event of a successful journey, profits were shared equally. In the event of failure, losses were not bankrupting. This is how the joint-stock company came into being and with it, the template for modern stock markets.

Eventually the various mercantile players would consolidate to form the Dutch East India Company in 1602, the size and scope of which would make the likes of Apple or Google look like a local corner shop today. Imagine a company with its own globe-spanning navy. Across the channel, in London, a similar venture had already begun a couple of years prior. Although the British and Dutch East India Companies would start around the same time, the latter was much better established and well-funded than the former. We’ll spare the reader too much of a history lesson but eventually the British counterpart won out and became the dominant player. Combined with the global balance of power shifting towards Britain, France, and to a lesser extent the Americas, Dutch influence over world trade slowly dwindled and by the early 1800s, London was the world’s de facto financial centre.

The banking practices that were first developed in Amsterdam spread to London where they were further refined. It was during this time that international finance began in earnest, with English contract law becoming the standard for financial agreements throughout the world. It remains the largest financial centre for numerous markets to this day, including derivative markets, forex markets, international bank lending, international insurance and the trading of base metals.

As the century progressed, the world became increasingly interconnected and multipolar. The first transatlantic cable was laid between London and New York in 1866; communication networks improved dramatically with the advent of the telephone; railways connected the far corners of the world. Free trade and capital flows were greatly facilitated, making international investments more feasible than at any other time in history.

By the 1870s, the world financial system was in the firm grip of globalisation. This had the inevitable effect of drawing power away from the traditional centres of London and Paris, spreading to New York, Berlin and a number of European cities. The First and Second World Wars would diminish Europe’s influence over international finance in favour of the United States. To this day, New York remains the home of the two biggest stock exchanges in the world, the three major global credit rating agencies, a vast number of hedge funds and investment banks, as well as the largest financial centre for public and private equities.

The end of the Second World War marked the start of the Japanese economic miracle that would culminate in Tokyo becoming a world financial centre in the 1980s. This waxing influence would then go on to spread throughout the Far East. Singapore and Hong Kong, ideally situated to capitalise on the explosive economic growth in Asia would quickly attain the same status. The rise of the Chinese economy would in turn rapidly establish Shanghai as its representative on the world financial stage. Even more recently, we have seen markets shift yet again, this time towards Central and Southern Asia, as well as the Middle East, in the financial centres of Astana, Mumbai and Dubai.

The growing number and geographic spread of financial centres may offer a reflection of the increasingly multipolar world we live in. When Venice established itself as the financial hub of the Mediterranean, it remained as such for the better part of a thousand years. Some things change; some things don’t. Financial centres may have shuffled around over the years. As for the activities they are renowned for? Not so much. At the end of the day, we buy and sell things to one another in much the same way as we always have. Even some of the more complicated financial instruments are in fact far older than one might expect. Perhaps the crypto revolution can shake things up a bit.