New York are the only two pre-eminent international financial centers with
advantages over other cities. One city that is emerging as a financial
center of the Asian continent is Tokyo.
Strengths of London include:
1. The concentration of business and service functions - among them support
services such as legal services, accountancy, and management consultancy.
2. Efficient world-wide communication links.
3. A favorable position in the time zone between the United States and Far
East.
4. A stable political climate.
5. World-class service industries including hotels, restaurants, theaters
and other cultural attractions.
Britain and the City of London as a financial symbol, encouraged
international liberalization in financial services. It played a major role
in negotiating agreements closely connected with GATT (General Agreement of
Tariffs and Trade) as well as negotiations within the Organization for
Economic Cooperation and Development. Briefly, apart from world-wide
insuarence and banking strength, Britain’s important features include:
. Its foreign exchange market,. whose daily turnover of 294 Mln pounds in
1995 represented 30% of Global turnover and was more than the turnover of
New York and Tokyo combined.
. The London Stock Exchange which is the biggest trade center for overseas
equities in the world; it makes 55% of global turnover.
. The world’s second largest fund management center, after Tokyo.
. One of the world’s biggest markets in financial futures and options.
. One of three largest international bond centers in the world.
Britain’s international role in the world monetary and financial fields
became particularly in the late 1980s.
Deregulation has been the main catalyst in increasing the City’s role as an
international financial center. Fundamental reforms of 1986, known as Big
Bang affected the London Stock Exchange tremendously, because any foreign
financial institution can now participate in the London money market. “What
we were trying to do”, in the words of a former Deputy Chairman of London
Stock Exchange, “ was to create a new market, not one just oriented toward
the UK, but one that can become international”. It was intended to secure
London as the leading financial center of Europe, and the third in the
world alongside New York and Tokyo.
Many foreign banks and finance houses tried to profit from the
deregulation, some by direct competition and others by buying long-
established City enterprises. Before the Big Bang all City stockbroking
firms were British. By 1990 one hundred fifty four out of four hundred and
eight were foreign owned. The main investors in British stockbroking are
the United States, Japan and France (also see Chapter 2, The Stock
Exchange).
British banks, insurance companies, building societies, and other money
lenders often prefer to invest in other areas, rather than industry, in
contrast with Britain’s competitors, for example Germany and Japan, where
the level of industrial development is higher.
Britain strongly supports the removal of national regulations and exchange
controls which restrict the creation of common market in financial
services. London is a major center for international banking. Altogether
five hundred sixty one foreign banks are represented in Britain. They
employ about 40.000 people and provide different services in many parts of
the world.
Japan and the United States are the two countries with most banks
represented in London (see the table attached). Assets/liabilities of
overseas banks in Britain have doubled in the last ten years. Overseas
banks have a very high proportion of their operations in foreign currency.
Since the end of 1920s the Moscow Narodny Bank has been operating in London
to deal with transactions with the Soviet Union and Russia now.
A number of British banks have their head offices in Britain but operate
mainly abroad. Standard Chartered is the major bank in this sector: it has
a network of over 600 offices in more than 40 countries and employs over
25.000 people. Standard Chartered’s activities are concentrated in Asia,
Africa and Middle East.
British banks are developing innovative banking services in their overseas
operations. For example Standard Chartered has opened the first fully
automated branches in Hong Kong and Singapore. Satellite dishes have been
installed in Barclays’ branches in Zimbabwe
London and Tokyo are the main world centers for eurocurrency dealings. The
euromarket began with eurodollars - US Dollars lent outside the United
States - and now has developed into a powerful market of currencies lent
outside their domestic marketplace. Transactions can be carried out in
eurodollars, eurodeutschmarks, euroyen, and so on. So, euroloans are short-
term trances (three to six months) given by banks at the LIBOR rates.
Eurobonds are issued for periods of five to twenty years in currencies
other than that of the issuing country.
The London International Futures Exchange trades on the floor of the Royal
Exchange building. Over 200 banks and other financial institutions, both
British and foreign, are members of the market. In fact over 70% are
overseas-owned. They make contracts in British, German, Italian, and
Japanese Government bonds.
In 1995 LIFFE announced new linking agreements with the Tokyo International
Financial Futures Exchange and Chicago Board of Trade. In 1996 LIFFE merged
with the London Commodity Exchange, which is Europe’s primary market for
trading futures and options contracts in cocoa, coffee, sugar, wheat,
potatoes.
Anyone may deal in gold but, in practice, dealings are largely concentrated
in the hands of five members of the London gold market. Around 60 banks and
often financial companies participate in the London gold and silver
markets. Trading is done by telephone and electronic communications links.
The five members of the London Bullion Market Association meet twice daily
to establish a London fixing price for Gold and this price is a reference
for world-wide gold dealings.
Chapter 5.
Recent Financial Institutions (the London Club, Britain in the IMF, British
Banks in Russia).
The International Monetary Fund (IMF) and the London Club can not be
properly described as recent institutions but it is important to note their
recent activities in the light of the financial problems in Russia.
The IMF was founded in 1944 to secure international monetary cooperation
and stabilize exchange rates. Operating funds are subscribed by member
Governments according to the volume of their international trade, their
national income and their international reserve holdings. Members with
temporary difficulties in their international balances of payments may
purchase or get credits form the IMF of the foreign exchange they need at
fixed rates if they meet the required conditions. Russia applied to the IMF
for credits.
Great Britain plays an important role in the IMF. On the 10th of September
1999 the Сhancellor of the Exchequer Gordon Brown was appointed to the
Interim Committee of the IMF. The Committee was established in 1974 to
advise the IMF on the management of the international monetary system as
well as on dealing with any sudden shock to the world money system. The
Chancellor will lead discussions on the reform of the Interim Committee
after the proposals of the G7 Finance Ministers.
There will be also discussions on reforms to involve the private sector in
presenting the world financial prices. It is the aim of IMF to relieve
third world debt to avoid large-scale financial crises.
Among the recent developments it is important to mention the choice of
London as the location of NASDAQ-Europe. In his speech on the 5th of
November 1999, the Chancellor of the Exchequer Gordon Brown it was
excellent news for the City of London to launch a joint venture to create a
pan-European security market.
Gordon Brown said: ”NASDAQ’s decision to locate its European exchange here
represents a massive vote of confidence in the City. NASDAQ - Europe will
strengthen the UK financial services industry and reinforce London’s
position as one of the worlds’ top international financial centers”. Mr.
Brown added, “NASDAQ’s presence here will be good for the wider economy
too, not just in the UK but Europe as a whole. Job creation and economic
growth depend on efficient capital markets sending funds to businesses to
finance their expansion”.
An important move in the European monetary life was the introduction of a
single European currency, the Euro, on the 1st of January 1999. A separate
protocol recognizes that Britain is not obliged to join the currency
without a separate decision by British Government and Parliament.
So far the Bank of England has not voted to adopt the single currency. On
the 6th of September 1999 Mr. Cook , the Foreign Secretary, stated that if
the Euro proves to be a success, it would be in Britain’s interest to join
it. Britain will first have to test whether there is enough flexibility in
British economy and if the Euro will promote strong international
investment and boost British financial services industry.
According to the decision of European Union (EU) Heads of Government single
currency notes and coins will be introduced at the beginning of 2002 at
latest.
The London Club set up in the 1980s under an agreement in London, comprises
over 600 big commercial banks whose credits are not covered by government
guarantees or insurance. There is a steering committee of the Club which
operates between the Club’s sessions. The Sessions are held at the request
of the debtors in different cities of the world.
After the collapse of the USSR, the Soviet Union bank for Foreign Economic
Affairs owed the London Club a total of over 32 Bln Dollars. Under the
latest decision on restructuring the Russian debt it was agreed in February
2000 that the debt would be restructured. Nearly one third of the total
amount will be written of and Russia will be allowed to have a grace period
of seven years, during which it will pay only reduced interest rates on the
remaining sum. In return, the Russian Government undertakes the
responsibility for the debt and would be considered defaulting if it fails
