Proposal preview

Competition and Complementarity between International Financial Centres on the Waves of Globalization from Historical and Network Perspectives

The waves of globalization and international finance are tightly interconnected. Sometimes international finance is the engine of globalization, at other times, international finance rode on a wave of globalization, or contrarily, a wild wave, such as currency crises in emerging countries swallowed it. Therefore, examining the history of international finance is useful in understanding the waves of globalization in a long-term historical perspective.
As international finance tends to concentrate on specific cities, throughout modern history, our perception of its rise and fall on the waves of globalization overlap with the rise and fall of such cities. However, empirical research by a financial historian (H.C.Reed, 1981) revealed that it was rare for important financial centres to disappear in the 20th century, except in cases of communist revolutions or civil wars. Rather, the coexistence of leading international financial centres was more general.
Accordingly, this session first focuses on the relationships between international financial centres in a long-term historical perspective. As frameworks for analysis, we use the competition – complementarity approach and the network analysis approach. The former idea is based on Schenk (2002) and Cassis (2009). The latter has already proved its effectiveness in clarifying a multi-layer structure of international financial centres, i.e. core, intermediate, and peripheral (Flandreau and Jobst, 2005). Using these two approaches, we can classify relationships between international financial centres into the following working hypotheses; the first is competitive within the same layer; the second is complementarity within the same layer; the third is competitive between different layers; and the last is complementarity between different layers.
Next, we focus on the functions of international financial centres as a complete network system. Particularly, how do the functions of an international financial centre network relate to the development of economic globalization?
With these new perspectives, this session will examine the following historical cases: foreign bond issues in London, Paris, and New York before World War I and in the 1920s; the relationship of China (Shanghai) with the London and New York markets in the 1930s; the relationship of Japan (Tokyo and Osaka) with London euro dollar markets and New York markets in the 1960s; the relationships between London and financial centres in Europe in the euro dollar markets in the 1970s; the competitive environment of London in the Big Bang of the 1980s; and relationships between Asian intermediate centres such as Hong Kong, Singapore, and Tokyo before and after the Asian financial crisis in 1997.
Studying these cases, we try to clarify how international financial centres, as a network, relate to the fluctuations in globalization waves, i.e., making waves, surfing them, or sinking beneath them.

Organizer(s)

  • Ayumu Sugawara Tohoku University/University of York ayumu.sugawara.a5@tohoku.ac.jp Japan
  • Edoardo Altamura Lund University Edoardo.Altamura@unige.ch Sweden

Session members

  • Koji Fuda, Asia University
  • Hidenao Takahashi, University of Tsukuba
  • Catherine R. Schenk, University of Oxford
  • Simon Mollan, University of York
  • Manhan Siu, Osaka University of Economics
  • Seung Woo Kim, University of Cambridge
  • Bryane Michael, University of Oxford
  • Ayumu Sugawara, Tohoku University/University of York

Discussant(s)

  • Masato Shizume Waseda University masato.shizume@waseda.jp
  • Edoardo Altamura Lund University Edoardo.Altamura@unige.ch
  • Youssef Cassis European University Institute Youssef.Cassis@EUI.eu

Papers

Panel abstract

The waves of globalization and international finance are tightly interconnected. Reed (1981) revealed that it was rare for important financial centres to disappear in the 20th century except revolutions or wars. Rather, the coexistence of leading international financial centres was more general. Accordingly, this session first focuses on the relationships between international financial centres in a long-term perspective. As frameworks for analysis, we use the competition – complementarity approach and the network analysis approach. The former idea is based on Schenk (2002) and Cassis (2009). The latter has already proved its effectiveness in clarifying a multi-layer structure of international financial centres (Flandreau and Jobst, 2005). Using these two approaches, we can classify relationships between international financial centres. Next, we focus on the functions of international financial centres as a complete network system. Particularly, how do the functions of an international financial centre network relate to the development of economic globalization?

1st half

Foreign bond price and adjustment of exchange rate a case study of Japanese government bond price in London market during the interwar period

Hidenao Takahashi

This paper examines difference in prices of Japanese government bonds with foreign exchange clause and that without the clause in 1920s and 1930s in London market. To some extent, foreign bond price movement were affected by adjustment of foreign exchange rate following restoration and abandonment of gold standard during the interwar period. If they forecast appreciation and depreciation of currencies, market participants could transfer their fund across international financial centers to avoid loss of value of their foreign lending. In 1920s and 1930s, some foreign currency denominated bonds were attached with foreign exchange clause including Japanese government bond traded in the London financial market. The foreign currency clause could offer bond bearers a hedge against risks of foreign exchange rate adjustment. Thus, this paper focus on role of the foreign exchange clause to link bond price movement and foreign exchange rate adjustment.

This paper examines difference in prices of Japanese government bonds with foreign exchange clause and that without the clause in 1920s and 1930s in London market. To some extent, foreign bond price movement were affected by adjustment of foreign exchange rate following restoration and abandonment of gold standard during the interwar period. If they forecast appreciation and depreciation of currencies, market participants could transfer their fund across international financial centers to avoid loss of value of their foreign lending. In 1920s and 1930s, some foreign currency denominated bonds were attached with foreign exchange clause including Japanese government bond traded in the London financial market. The foreign currency clause could offer bond bearers a hedge against risks of foreign exchange rate adjustment. Thus, this paper focus on role of the foreign exchange clause to link bond price movement and foreign exchange rate adjustment.

The political dimension of international financial centers China’s currency reform of 1935

Manhan Siu

The political dimension of international financial markets, especially in its relations with developing countries was important in its development. This paper will examine the international rivalry between the U.S. and Britain in the banking sector of China in the 1930s. There are a lot of literature on China’s currency reform of 1935. However, most of them focused on the Leith Ross Mission and American silver purchase policy, attributed the success of the reform to cooperation of both American and British governments toward China. There are few studies examined this reform from the perspective of rivalry relation between the U.S and Britain. This paper will show that the American adviser employed by National government played a critical role in this reform. He contributed to the U.S. ‘dollar diplomacy’ by adopting measures to strengthen the position of Central Bank of China in banking, including foreign exchange market. After the currency reform, with...

The political dimension of international financial markets, especially in its relations with developing countries was important in its development. This paper will examine the international rivalry between the U.S. and Britain in the banking sector of China in the 1930s. There are a lot of literature on China’s currency reform of 1935. However, most of them focused on the Leith Ross Mission and American silver purchase policy, attributed the success of the reform to cooperation of both American and British governments toward China. There are few studies examined this reform from the perspective of rivalry relation between the U.S and Britain. This paper will show that the American adviser employed by National government played a critical role in this reform. He contributed to the U.S. ‘dollar diplomacy’ by adopting measures to strengthen the position of Central Bank of China in banking, including foreign exchange market. After the currency reform, with the institutional changes in banking system, American banks with strong connection in New York became as important as British banks in foreign exchange business, both London and New York became to have a great stake in Chinese currency. Most of the material used in this study was deposited in HSBC Group Archives.

London and New York in the international dollar markets in the 1960s A case of BOLSA and Japan

Ayumu Sugawara

The purpose of this paper is to explore the relationship between two core international financial centres, London and New York, in the 1960s through a case study on the Bank of London and South America (BOLSA) and Japan. In the 1960s Japan was one of the largest borrowers from the euro-dollar markets and the New York money market. The research shows that in terms of the relationship between BOLSA and the Japanese banks, the setter of the credit lines to the banks was mainly the New York branch of BOLSA. On the other side, BOLSA set its credit lines to Japanese industrial firms through its London branch. However, all these credit lines to the Japanese industrial firms were guaranteed by the Japanese banks that also had credit lines from BOLSA New York. From this analysis we can deduct that BOLSA utilised London and New York complimentary as dollar supply network.

The purpose of this paper is to explore the relationship between two core international financial centres, London and New York, in the 1960s through a case study on the Bank of London and South America (BOLSA) and Japan. In the 1960s Japan was one of the largest borrowers from the euro-dollar markets and the New York money market. The research shows that in terms of the relationship between BOLSA and the Japanese banks, the setter of the credit lines to the banks was mainly the New York branch of BOLSA. On the other side, BOLSA set its credit lines to Japanese industrial firms through its London branch. However, all these credit lines to the Japanese industrial firms were guaranteed by the Japanese banks that also had credit lines from BOLSA New York. From this analysis we can deduct that BOLSA utilised London and New York complimentary as dollar supply network.

Competitor or Complementary The Asian Dollar Market, City of London and the Financing of South Korea’s Economic Development, 1970~1975

Seung Woo Kim

This paper examines the standing of the Asian Dollar Market in Singapore in the global network of financial centres by comparing it with the Eurodollar market in the City of London. For the purpose, it addresses following topics: 1) how the government of Singapore conceived the Asian Dollar Market within the global network of Euromarkets, particularly the City of London; 2) the way in which leading banks in the Asian Dollar Market, particularly Americans, positioned themselves in the global market of Eurodollars; and 3) how South Korea used the Asian Dollar Market in its strategy for financing economic development, with a case study of the Sinil Chemical Company’s Eurodollar borrowings (i.e. refinancing of existing loans) in the early 1970s. This paper uses original documents from following archives: the National Archives of Singapore, the National Archives of Korea, the Bank of England Archives, and Federal Reserve Bank of New York Archives.

This paper examines the standing of the Asian Dollar Market in Singapore in the global network of financial centres by comparing it with the Eurodollar market in the City of London. For the purpose, it addresses following topics: 1) how the government of Singapore conceived the Asian Dollar Market within the global network of Euromarkets, particularly the City of London; 2) the way in which leading banks in the Asian Dollar Market, particularly Americans, positioned themselves in the global market of Eurodollars; and 3) how South Korea used the Asian Dollar Market in its strategy for financing economic development, with a case study of the Sinil Chemical Company’s Eurodollar borrowings (i.e. refinancing of existing loans) in the early 1970s. This paper uses original documents from following archives: the National Archives of Singapore, the National Archives of Korea, the Bank of England Archives, and Federal Reserve Bank of New York Archives.

The Development of Singapore IFC focusing on International Capital Flows

Koji Fuda

Singapore International Financial Centre (IFC) has been one of pre-eminent Asian regional financial centers since the late 1960s. This paper examines the development of Singapore IFC focusing on international capital flows. First, this paper presents new simplified global financial center indices which combine various data on international capital flows. The results of the regression analyses indicated significant correlations between the indices and Z/Yen group’s GFCI. In particular, we found a strong correlation between the index composed of data on ‘other investment’ and the GFCI. Second, this paper quantitatively and qualitatively investigates the trend of Singapore international capital flows from the establishment of Asian Dollar Market in the late1960s. According to the analyses, we found that Japanese firms had also played an important role to promote the development of Singapore IFC through accelerating international capital flows via Singapore to meet the growing demand for funds in Asian region.

Singapore International Financial Centre (IFC) has been one of pre-eminent Asian regional financial centers since the late 1960s. This paper examines the development of Singapore IFC focusing on international capital flows. First, this paper presents new simplified global financial center indices which combine various data on international capital flows. The results of the regression analyses indicated significant correlations between the indices and Z/Yen group’s GFCI. In particular, we found a strong correlation between the index composed of data on ‘other investment’ and the GFCI. Second, this paper quantitatively and qualitatively investigates the trend of Singapore international capital flows from the establishment of Asian Dollar Market in the late1960s. According to the analyses, we found that Japanese firms had also played an important role to promote the development of Singapore IFC through accelerating international capital flows via Singapore to meet the growing demand for funds in Asian region.

Financial Centres’ Polyarchy and Competitiveness Does Political Participation Change a Financial Centre’s Competitiveness

Bryane Michael

What role does polyarchy (and thus increased democracy) play in aiding the development of an international financial centre? We find support for decades of theorising that some jurisdictions use autocracy (less polyarchy) to help grow out their financial centres. We look at the growth of these financial centres as the extent to which they attract more funds from abroad (cross-border bank liabilities). Polyarchy decreases as other international financial centres’ centrality in the global financial centre network expands. Polyarchy increases in most jurisdictions over time because some financial centres rely on increasingly polyartic governance as a way to foster financial innovation through increased participation by non-previously powerful sectors. Namely, the growth of an international financial centre’s centrality in global financial networks relies on tapping down on polyarchy. Yet, such polyarchy – when used by some very central jurisdictions to remain central – “spreads.” We model such a relationship between polyarchy and...

What role does polyarchy (and thus increased democracy) play in aiding the development of an international financial centre? We find support for decades of theorising that some jurisdictions use autocracy (less polyarchy) to help grow out their financial centres. We look at the growth of these financial centres as the extent to which they attract more funds from abroad (cross-border bank liabilities). Polyarchy decreases as other international financial centres’ centrality in the global financial centre network expands. Polyarchy increases in most jurisdictions over time because some financial centres rely on increasingly polyartic governance as a way to foster financial innovation through increased participation by non-previously powerful sectors. Namely, the growth of an international financial centre’s centrality in global financial networks relies on tapping down on polyarchy. Yet, such polyarchy – when used by some very central jurisdictions to remain central – “spreads.” We model such a relationship between polyarchy and centrality in the global financial network, describing even the most complex quantitative analysis in a way a non-specialist can understand. These results could impact decisions ranging from Brexit to Hong Kong’s autonomy in its post-2047 period. The online version is https://www.youtube.com/watch?v=LmjSvcsOZEg&app=desktop

2nd half

The Court of the Bank of England an analysis of cohort characteristics and change over time

Simon Mollan

Using data gathered from the Bankers Almanac, the Directory of Directors, and Who Was Who we have assembled a prosopographical database of the members of the Court (board) of the Bank of England from 1910 to 2010. We use this to explore the changing demographic composition the court over time. As the governance mechanism of the Bank of England, the court represents both the professional expertise and institutional connections of the Bank. We explore the nature of elite socialisation in terms of educational background, industrial/financial connections, as well as institutional and professional affiliations. Our findings are that while some things such as age and gender distribution are relatively consistent over time, the education and professional expertise of the group change over time to reflect the rise of professional central bankers.

Using data gathered from the Bankers Almanac, the Directory of Directors, and Who Was Who we have assembled a prosopographical database of the members of the Court (board) of the Bank of England from 1910 to 2010. We use this to explore the changing demographic composition the court over time. As the governance mechanism of the Bank of England, the court represents both the professional expertise and institutional connections of the Bank. We explore the nature of elite socialisation in terms of educational background, industrial/financial connections, as well as institutional and professional affiliations. Our findings are that while some things such as age and gender distribution are relatively consistent over time, the education and professional expertise of the group change over time to reflect the rise of professional central bankers.

Regulatory competition and complementarity in an offshore financial centre the Asia Dollar Market in Singapore and Hong Kong 1968-1986

Catherine R. Schenk

Offshore financial centres have attracted considerable critical attention over the past few decades as havens for lightly taxed funds that circulate outside the regulatory oversight of major financial centres. This paper addresses the emergence of an offshore market in US dollars in Singapore from the late 1960s using a range of archival sources to identify the motivations of the host, participant banks and regional rivals. The development of the Asia Dollar market is particularly striking because Singapore was not the most likely venue for an Asian offshore financial centre. The main regional financial centre was Hong Kong, but the Hong Kong authorities made a deliberate choice not to host an offshore market in Hong Kong; a decision that was initially supported both by the state and by incumbent banks, although the banks later changed their view as the Singapore market grew. This case thus opens up discussion of the influence...

Offshore financial centres have attracted considerable critical attention over the past few decades as havens for lightly taxed funds that circulate outside the regulatory oversight of major financial centres. This paper addresses the emergence of an offshore market in US dollars in Singapore from the late 1960s using a range of archival sources to identify the motivations of the host, participant banks and regional rivals. The development of the Asia Dollar market is particularly striking because Singapore was not the most likely venue for an Asian offshore financial centre. The main regional financial centre was Hong Kong, but the Hong Kong authorities made a deliberate choice not to host an offshore market in Hong Kong; a decision that was initially supported both by the state and by incumbent banks, although the banks later changed their view as the Singapore market grew. This case thus opens up discussion of the influence market actors exert over regulators when they are engaged in regulatory arbitrage as well as regulatory competition between states. Evidence is also presented about the efforts of the Bank for International Settlements to encourage greater transparency in offshore financial centres in the 1980s.

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