The Next Financial Capital of the World: New York, Singapore, Dubai, London or Hong Kong?
Introduction
The crown title of Financial Capital of the World has migrated across continents over the past dozen centuries. Often finding its next location based on a variety of criteria that we will explore, the crown’s migration path seems to be driven by subtle patterns.
Italy
Arriving by train to Milan in the early Spring of 2018, it was a bit nippy in the fashion and financial capital of Italy. The fluidity of conversational exchange between strangers was a notable difference from my previous experiences in Zurich and Zug earlier that week. As a vein of commercial exchange, the Italian peninsula served as an integral link at the end of the ancient Silk Road, connecting goods and capital westward into Europe. Modern-day Italy’s fortuitous location, led to the first truly global financial centers in Florence, Venice and Milan from the 12th to 15th Centuries. Of course, its financial hub concentration was also due to other factors, as well (namely, innovative methods of pooling capital for overseas ventures). Today, the undisputed financial capital of the world is New York. In a rapidly changing geopolitical and technological landscape, will it remain dominant, or might another city emerge with the crown? Will technological advancements render the notion of a physical financial capital city obsolete?
Dubai, Maybe?
If the next financial capital of the world is Dubai, my wife might consider me quite prescient, despite my inabilities to foresee her annoyance when I forget to close a cabinet door. The actual reason I moved our family to this particular city was because of its growing economy, cultural dynamism, public safety, abundance of high-quality English-speaking schools for our kids, and the general opportunities for pooling capital for overseas ventures (namely in emerging economies).
My wife was reluctant to move to Dubai after my first enthusiastic 2017 recommendation of immigrating to the UAE. At our previous home in Seoul, after an adventurous Dubai business trip, she brushed off the inconceivable idea. At that time, she had a quite monolithic perception of the Middle Eastern region, rooted in vague, media-inspired notions of instability. However, in 2021, I finally brought the family to Dubai on holiday during the Pandemic. In summary, she fell in love. She does miss authentic Korean kimchi, however (and has since started a jarred Kimchi business here). Opportunities, as it were. Needless to say, when South Korea was raising a behemoth amount of capital in its drive for carbon neutrality, UAE sovereign wealth funds invested $30 billion.
The Crown’s History
The financial capital of the world title has shifted for various reasons through the past millennium of global trade. From Rome, as the global financial capital (to some extent, as it was largely disconnected from China), in the first centuries AD, then to Constantinople (400–700 AD), followed by Baghdad (800–1200 AD), and then Florence as the financial capital in the 13th Century. Remaining within Italy, the financial capital of the world shifted to Venice in the 14th Century. Then onto Antwerp (14th to 15th Century), then Amsterdam (late 16th Century to 17th Century), followed by London (17th to 19th Century), the crown ventured.
In June of 1893, Tony Drexel passed away. This would mark the beginning of a series of key events that would see the transition from London to New York as the financial capital of the world (namely, the American banker John Pierpont Morgan consolidating power between London and New York as the Drexel heirs transitioned into more leisurely endeavors). For clarity, the financial capital of the world is defined here as the corridor that accommodates the flow of unsurpassed quantities of financial concoctions.
The Crown Today
In February of 2022, escalations in the Russio-Ukraine war marked the beginning of a series of events that would begin detaching New York from capital in Russia. The US introduced executive orders that strangled Russian access to Western capital. Russian banks were blocked from the largest international money transfer mechanism, SWIFT. Through heavy-handed sanctions by the US, EU and key Asian allies of America, Russian oil and other natural resources became largely frowned upon (though largely accepted through proxies). The great Chip Wars would escalate between the US and China, thereafter, leading to various policies that would further detach New York from capital in China. The remaining BRIC nations of India and Brazil would see themselves in the middle of a power struggle between the US and China, transacting at large scales with both, always to the chagrin of the other.
Singapore would emerge as a somewhat neutral financial hub in Asia, while Dubai maintained neutrality as the leading financial center of the Middle East, South Asia and Africa.
National decline, war, and competitive city forces find themselves as the primary culprits of the transitions of power between global financial hubs. These factors, combined with the general nature of capital, might be considered potent predictive attributes of where the crown passes next.
A Story of You as a Modern Investment Banker, Facilitating the Movement Freedoms of Capital
To illustrate this idea around the nature of globalized capital in the modern era, perhaps an allegorical story might be in order.
You’re based in New York. Your wealthiest client travels quite frequently. He’s often in Monaco, but he’s based in Dubai. He’s an American with a highly diversified portfolio, thanks in large part to you. You’re his private wealth advisor and friend. Your unique value propositions are trustwothiness and global reach, in a world teeming with opportunities on 6 (and maybe even 7 continents). Unfortunately, ice caps melting in Antarctica present opportunities for mineral extraction clients of the firm.
Your firm operates in 30 countries. You’re only a phone call away from the most competent person within the firm with the nearest office to where any opportunity lies.
Your client recently became interested in a lithium mining company in Brazil. It’s a straight-forward opportunity to grow his portfolio by a few million dollars.
Investment banks, by their nature, house some of the world’s most profitable secrets: acquisition offer letters, merger due diligence reports, private conglomerate banking records, wealthy individual tax filings and more. The more information an investment bank has, the better side-effect knowledge they have, because they cannot legally use this confidential information for financial gain. The greater the global reach is, the more services and value an investment bank can offer. If an investment bank doesn’t have a strong presence in China, it will not be able to compete seriously with other firms that can generate much greater returns, purely on the back of having more of this side-effect knowledge. They might take some client business away from your firm. No bueno.
To maintain this access, despite trade wars, sanctions, and armed conflict, you invent bespoke solutions constructed, by armies of lawyers and bankers, creating legal and regulator-approved vehicles of investments with your firm’s colleagues abroad to meet your client’s needs. In order to gain access to a sanctioned chip manufacturer, a Singaporean fund that invests heavily in said manufacturer may be utilized. Capital has a way of making its way where the opportunities for returns are most probable and lucrative. Your American client’s desire for an investment in the Brazilian lithium mining corporation, and perhaps more and similar opportunities (as you always up-sell), can be conducted competently with various assurances, thanks to your firm’s global relationships and previously mentioned side-effect knowledge. It’s also easier for you to get information locally from trusted colleagues, because you’re, after all, in the financial capital of the world.
Where To Next?
I was in New York a few weeks ago, visiting a boutique investment bank down on Wall St. After a dinner with sweeping views of the Manhattan skyline, we ventured down to participate in the afterwork festivities on Stone Street. As we approached our next destination, I saw it.
Delmonaco’s. Closed. This was J.P. Morgan’s favorite restaurant in the late 19th Century and a staple of Wall Street culture. One of my early mentors taught me various and peculiar dining maneuvers for professional dinners at Delmonaco’s. I hear it’s closed due to a post-Covid legal battle, and that they may be reopening in August. However, seeing it closed on a non-holiday, Monday evening at 7pm had the air of metaphor.
New York is still the reigning financial capital of the world. I owe my earliest professional successes to the opportunities the city provides. I still work with firms in New York: you have to. Having to: perhaps that is really what makes a city the financial capital of the world. Reliance. On a global scale.
The Role and Pattern of Taxation in Financial Capital City Transitions
I had a Zoom chat with a friend and seasoned Silicon Valley venture operator earlier today on the topic of the global financial capital title migration. She seemed certain about about the natural cause. “It’s wherever people can hide their money,” she said. I thought about it. New York emerged as the global financial capital as American policy embraced the ideas of limited liability companies and Mr. J.P. Morgan’s trust concoctions. This was also at a time in the late 19th Century, when European countries, especially the UK, were ramping up their widespread tax collection practices against wealthy Europeans, many of whom began, coincidentally, shifting capital overseas. The American limited liability company development innovations also created interesting opportunities to avoid tax burdens via legal profit-shifting between subsidiaries, corresponding with letters of credit back to Europe. Of course, Americans didn’t have the same financial maneuvering temptations before 1913, as there was no income or corporate tax before then in America. Similarly, Britain had little to no personal income or corporate taxes through much of London’s reign as financial capital, until its decline. It was the same with Amsterdam when it held the crown. The crown shifted away from the Dutch city to London as it began taxing wealth and income more heavily. All the way back until ancient Rome, we find a correlation between the ascension of a financial capital city in conditions with little to no income taxes. Subsequently, we observe the financial hub’s global leadership status beginning to slip as its state introduces or drastically increases taxes on individual and enterprise wealth and earnings.
Note: Upon publication of the first version of this post, I received feedback from the esteemed Silicon Valley venture operator mentioned previously. Perhaps, we could look past mere taxation policies and enforecements. Turning our analysis toward the increased tendency of governments to seize private assets (despite the rationale), we might find further symptoms of declining financial capital cities. Certainty of financial asset safety, after all, is a major draw for owners of private wealth.
Conclusion
Hong Kong, Singapore, Dubai, Miami, London, SF, Paris, Shanghai, Sao Paulo, Cape Town, Toronto and the Metaverse all have interesting, unique characteristics that may one day see them blossoming into the global financial leader. We might watch how their parent nation’s taxation, asset seizure and capital control policies evolve to get a sense of how those changes may rhyme with historical patterns we’ve analyzed.
During my aforementioned 2018 trip to Milan, I remember observing magnificent works of art and architectural wonders created at the height of the city-state’s global power and influence. Perhaps charting the fastest growing fine art markets might give us a clue as to the likeliest candidates for the next financial capital of the world.
