The U.K. is the highest net exporter of financial services and London, with its convenient time zone, use of English and feather-light regulations, is the world’s financial capital. Various cities, including Venice and Amsterdam, have held and lost the title throughout history. Â
Brexit and the possible loss of passporting rights of firms in Britain have raised questions about whether the city can keep its position at the heart of international monetary system. But how did it get there? We briefly trace the history.
The City of London
London’s primary financial district is actually a city in itself. Known as The City of London, it was established a few years after the Roman invasion in AD 50 on the north bank of the river Thames and even has its own mayor and governing body called City of London Corporation.
Like other ports, commerce flourished in the City and it drew merchants and entrepreneurs from all over. Historian Peter Borsay says London's population went from 50,000-60,000 in the 1520s to a million by the end of the 18th century. Between 1650 and 1750, it saw the arrival of 8,000 immigrants a year, according to historical demographer Tony Wrigley. These merchants established guilds and wielded great influence and power. They were able to secure autonomy and special freedoms and rights for the residents that businesses in the area enjoy to this day.
The merchants also went into banking and developed the sector. The Bank of England, which stands in the middle of the City, was a private corporation started by merchants in 1694 during the Nine Year War to fund the government’s military efforts. It received various long-term privileges and became a monopoly.
Coffee houses, numerous within the City’s walls around this time, were used as makeshift offices that would become financial institutions. The London Stock Exchange was started by stockbrokers who conducted business in Jonathan’s Coffee House in Change Alley. Similarly, the insurance market Lloyd’s of London was named after a coffee house on Tower Street that was used by marine underwriters.
Map drawn of the City by Robert Walton in 1676 displays the various guild halls. Â Harvard Library
There was hardly any question as to which city in the U.K. financial activities would concentrate in. “An ancient banking tradition, a major port, the capital seat, the hub of the railroad network built after 1830, all forces were brought to bear on the single locality, itself with a minor ambivalence between the City and the West End. The Irish and Scottish different banking systems reached across their boundaries and linked up with London,” wrote economic historian Charles P. Kindleberger in The Formation of Financial Centers.
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