International Financial Centers: The British-Empire, City-States and Commercially Oriented Politics

Abstract

Nearly forty percent of the world’s financial assets are located in loosely defined British Empire city-state jurisdictions. This article seeks to provide an explanation for this odd development. My explanation of the rise of such a British Empire-centered economy links the development of the Euromarket, or the offshore financial market, to three sets of theories. The first is the hinterland theory that explains why small city-state types of jurisdictions are in an advantageous position when it comes to trading in Euromarket financial assets in comparison to other states. Second is the dependent jurisdictions theory, which suggests that dependent jurisdictions are perceived as safer locations for investment than independent islands, in addition to which they are able to offer better treatment of nonresident capital because they are subsidized by the motherland. As the British Empire was the largest Empire the world has ever seen, it is perhaps not surprising that the British state has inherited the greatest number of such dependent jurisdictions, and that they, in turn, have taken advantage of their "Britishness" to develop their financial centers. Third, I advance a related argument that suggests that the hegemonic position of the British Empire in the world economy prior to the rise of the United States was an important factor as well. Here, I draw on the idea that city-states and, more generally, trading centers tend to be dominated by commercially outward-oriented elites.