Abstract
The geographical area in which an international financial center is located must be attractive as a place where people want to live, work, and visit. A policy strategy for developing a financial center will involve conceptualizing the center as a cluster; finding a niche for entry at the international level, in terms of clientele, products, and appropriate service providers; enhancing competitiveness by building capacity, structuring incentives, and improving the quality of the national governance environment; and putting in place high-quality financial services supervision and regulation. The capacity of the financial center will be built by strengthening the institutions (rules governing behavior), organizations, and mechanisms in the host country to support innovation in financial services; investing in appropriate human capital; raising financial capability of citizens; and putting in place appropriate physical and technological infrastructure. Keeping taxation at low rates will also be helpful. Selective intervention policies to promote the center can include assisting with market research and information on new products and knowledge inputs; making available critical infrastructure and public services at competitive costs to users; and making a special effort to patronize the center especially via demand for its services.
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Notes
- 1.
- 2.
In Germany, the government launched a drive for Finanzplatz Deutschland, which among other things they hoped would help promote nonbank financing and spark greater German interest in equities. It was essentially an alliance of the Deutsche Börse, the Bundesbank, the big banks, the City of Frankfurt, and virtually all the financial institutions, German and foreign, that operate out of Germany. The aims included a futures market, improved electronic links among regional markets, longer opening hours, and elimination of a German turnover tax on securities transactions. In France, Paris Europlace is an organization that helped in promoting Paris as a financial center. It represents the major players—investors, corporate issuers, brokerage firms, banking organizations, market authorities, as well as legal, accounting, and consulting firms and professional associations. Its mission has been to bring together all the players to promote and lobby (in France and Europe) for the French financial industry, as well as to foster reforms and design appropriate action programs to develop French financial markets, firms, and institutions.
- 3.
IFSL is an independent, not-for-profit membership organization. Its membership is drawn from UK’s financial and related businesses, including banking, insurance, trading exchanges, regulatory bodies, and professional services. IFSL is the designated private sector partner of UK Trade & Investment and the Corporation of the City of London for international promotion of UK financial services. It is involved in research, providing analysis and statistics that, among other things, inform on UK’s role in international financial markets; it works for greater liberalization of trade in financial services; and it facilitates contacts and opportunities for their members.
- 4.
Depth has to do with size of a financial market/organization relative to a relevant variable such as gross domestic product (GDP). Liquidity has to do with the value of financial assets traded in the financial market, during some time period, relative to, say, GDP; alternatively, liquidity is the value of the assets traded, in the financial market, during some time period, relative to the total value of the assets of the market.
- 5.
- 6.
See, for example, Levine (1997).
- 7.
For the African economic communities, see Johnson (2016).
- 8.
In its argument urging the Japanese authorities to remove certain firewall restrictions, the IBA Japan (IBA Japan 2007, p. 15) argued as follows: ‘IBA financial conglomerate members currently encounter the following problems due to the firewall restrictions in Japan; (1) inefficiencies due to the overlapping of human resources, organizational structures, and systems; (2) constraints on effective and efficient business management practices, including the formulation and implementation of business strategies and risk management at the group level; and (3) constraints on providing comprehensive financial services that would maximize customer convenience.’ Note that a financial conglomerate could, for example, conduct banking, securities, as well as other financial services business.
- 9.
A similar point has been made by Sanjeev Sanyal (2007) in the context of Mumbai.
- 10.
There are three tests: the independent capacity test, the 20 percent test, and the customary rate test. The independent capacity test specifies conditions under which the relationship between the UK manager and the nonresident is considered independent. The 20 percent test requires that the investment manager and persons connected with it, including connected charities, must not have a beneficial entitlement to more than 20 percent of the nonresident’s chargeable profit arising from transactions carried out through the investment manager. The customary rate test specifies that the UK investment manager ‘must receive remuneration at a rate that is not less than customary for the services.’
- 11.
See, for example, the discussion in Sundararajan et al. (2002).
- 12.
See Johnson (2002).
- 13.
See, for example, Välilä (2002) for a discussion on the basic analytical issues involved in considering fiscal support.
- 14.
In a sense, building credibility for political stability is easy; also, evidence on political stability is much easier to observe than evidence on corruption and good governance.
- 15.
See the discussion in Johnson (2007), pp. 155–161.
- 16.
See G-20 (April 2009).
- 17.
See, for example, Crouhy et al. (1998).
- 18.
See also Llewellyn (2002) on this point.
- 19.
See Kane (2002).
- 20.
Llewellyn (2002).
- 21.
Macey and O’Hara (2003).
- 22.
See, for example, Abrams and Taylor (2000).
- 23.
- 24.
See Lee Kuan Yew (2000), p. 77. As Lee Kuan Yew puts it, they ‘convinced the CME to adopt a mutual offset system with SIMEX that enabled round-the-clock trading. This revolutionary concept allowed an investor to establish a position at CME in Chicago and close off at SIMEX in Singapore, and vice versa, without paying additional margins. The U.S. Commodity Futures Trading Commission approved this arrangement.’
- 25.
Sanyal (2007) also suggests a ‘custom-built’ enclave for Mumbai financial center.
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Johnson, O.E.G. (2020). Attaining Sound International Financial Center Status. In: Financial Sector Development in African Countries. Palgrave Pivot, Cham. https://doi.org/10.1007/978-3-030-32938-9_4
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