Global political economy is undergoing a profound structural transformation and paradigm shift. To understand the evolution of international financial centres at this juncture, we need a long-term historical perspective to interpret our current environment.
Modern globalization can be roughly divided into several stages: the first wave of globalization took place in the late 19th century and early 20th century, built upon British hegemony and the expansion of Western colonial powers. Between World War I to World War II, the political foundation of globalization collapsed and the world economy experienced drastic restructuring and retreated from globalization.
Following World War II, a new global governance regime was established to enhance international cooperation, security and prosperity. While the Cold War divided the world ideologically and geopolitically, the competition between the United States and the Soviet Union unfolded largely within the post-World War II global governance regime. A new wave of globalization started to take shape during this stage, with greater depth and scope than before.
After the end of the Cold War, the international system has shifted towards new forms of complex interdependence among major powers, with the rise of global supply chains, the deepening of intra-product specialization, and the expansion of financial globalization bringing about huge flows of international trade and investment. Hong Kong's emergence as an international financial center owes much to this wave of globalization.
Since the 2008 global financial crisis, the global order has entered into a new phase of restructuring. The political support of globalization has been weakened by the rise of protectionism and nationalistic populism. The global networks of complex interdependence are under huge pressures to be reorganized.
From a historical perspective, geopolitics and security have played a fundamental role shaping the rise and fall of international financial centers. In the 17th and 18th centuries, Amsterdam was the leading international financial center, but it rapidly declined following the Napoleonic Wars and the French occupation. Its role in international finance was relegated to the background by London and Paris in the 19th century.
The 19th century witnessed London’s emergence as the top international financial centre. It was built upon the dominant position in the world economy and greater power competition that Britain had established after the Napoleonic Wars. The ambition of Paris to rival London as an international financial centre in the mid 19th century was put to an end by the Franco-Prussian War, and the gap between Paris and London widened.
The global order was radically reshaped by two world wars and the great depression. With the rise of the United States, New York replaced London as the top global financial center in the 20th century. Benefiting from the development of the Eurodollar markets, London continued to serve an important global financial hub. Since the 1980s, the rapid growth of Asian economies riding a new wave of globalization has propelled the emergence of a number of new international financial centres in Asia, such as Tokyo, Hong Kong, and Singapore.