Financial Gravity
Image by Allan Donque on Flickr

Money can be found in every culture. As such, financial centers where money is traded and financial flows come together are ubiquitous in history. Furthermore, financial centers play an ever important role in our globalized and digital economies, and understanding their dynamics provides an insight into the architecture of the financial system of the future.


  • Using data from the Global Financial Centres Index 22, we find a strong and positive correlation between the strength of a financial center and its connectedness with economic flows and the global economy (0.48 and 0.35 respectively). Furthermore, the broader economic context matters for established financial centers, as their strength is strongly and positively correlated with the ease of doing business (0.45).
  • In recent years, financial capital has grown much quicker than other forms of capital, like physical and human capital, and the global financial system has become a manifold of the real global economy.
  • The first cryptographically secured chains of blocks were conceptualized by Haber and Stornetta in 1991 as an efficiency improvement in the storage of digital documents. This method was implemented in 2008 as the publicly distributed ledger for the Bitcoin, a digital currency.



The modern financial system has its origins in the Renaissance. When the Italian monk Luca Pacioli brought the method of ‘double entry bookkeeping’ to Europe from the Levant in 1494, affluent merchants from Italy’s flourishing city-states established the first banks that were based on this accounting principle. These banks, like the Medici Bank or Banca Monte dei Paschi di Siena, introduced the first tradeable bonds and credit products (disconto) across the Mediterranean region to facilitate trade.

 financial centers where money is traded and financial flows come together are ubiquitous in history

The growth of Hanseatic trading cities and English export industry, and increasing maritime trade and voyages in the 15th century increased the velocity of money in Europe, and new financial innovations were invented to meet financial demand. In Amsterdam, stocks were introduced to finance costly exploration journeys and created the first publicly traded company and stock exchange. In London, the Bank of England was established in 1694 to guarantee the stability of the Commonwealth’s capital flows.

Both cities were the dominant places for international trade during these centuries. During the ‘first wave of globalization’ up until the WWI, financial centers with a truly global outlook and with specialized financial service industries emerged and became synonyms for international capital markets, like London’s City and New York’s Wall Street. Even though modern money has become more abstract (digital strings instead of coins), we still see that financial centers are not scattered randomly across the globe, but that some places attract a disproportional financial activity.

There are three dimensions that determine the financial centers’ strength and how and where they emerge. First, financial centers function as a hub: as the nodes where economic trading routes and international transactions come together, and where financial institutions provide the necessary liquidity (breadth dimension).

Second, besides facilitating (international) economic interaction, financial hubs also accelerate financial flows, because they harbor a high concentration of specialized financial services, like insurance services and investment banking, and invent financial innovations that improve the capital supply (their connectivity or depth dimension). Because of this, financial centers can also detach from the real economy and become places of financial instability.

Lastly, financial centers are often liberal, coastal, and cosmopolitical (mega)cities, which attract young talent and entrepreneurial business, like start-ups. As such, financial centers are often closely connected to vibrant and economic hotspots, with technological and economic innovation in search for more adventurous capital and investors (socio-cultural dimension). A fully decentralized monetary system might neglect this ‘soft side’ of financial centers.

These dynamics are reinforced by the political side of financial centers. Financial centers are of political and strategic importance, just like money helps to strengthen the national government’s power. Economic powers want to create their own financial hubs, for example for internationalizing their currencies or attracting other economies into their (financial) orbit.

With the emergence of a multipolar world order, we can expect financial centers in developing regions to become more important. On the other hand, financial centers will arise at those places where both the hard and soft preconditions for creating financial hubs are fulfilled: there is no financial hub without an economic and commercial hub function.