5 6  This point has been noted by Charles Kindleberger. See ‘The Global Financial Centres Index 20’, September 2016, published by the Z/Yen Group. 5  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  5  A second possible explanation is that modern financial markets are so large that the surplus generated by an original trade or manufacturing activity is far less relevant now than before. After all, since the abolition of capital controls after the end of the Bretton Woods era, financial services have grown a lot faster than global trade. In the UK, gross financial flows grew rapidly from the 1980s to the end of the 2000s and became larger than trade and current account flows. Once financial flows start to move through a financial centre, the ensuing returns to scale and specialisation generate greater financial flows through the centre. The flows associated with the UK’s extremely large external asset and liability position may have helped to reinforce this dynamic. A related point, one that I touched on earlier, is that physical location does not matter anymore, since technology allows investors to pick the most efficient location to manage the global allocation of capital. In this case, London is playing the role of asset manager, intermediating flows between different global regions. The investment decision and risk management skills are in London but the assets may be booked elsewhere. Allied to the increase in gross financial flows, it is possible that financial markets demand different inputs than in the past.
For example, the market for derivatives encompasses more human capital (in the form of law experts writing contracts) than physical capital. Given the dominance of UK law, this would tend to encourage activity in London. Finally, regulatory changes may have played a role. London became the main trading centre for the Eurodollar market in the 1960s. The City went through a wave of deregulation in the 1980s and beginning of the 1990s which may have contributed to its position as a global financial centre. All of these drivers are likely to have played a part in concentrating financial market activity in London. And indeed they are likely to have been mutually reinforcing. The social license for financial markets  I have described at some length why concentrations of financial services develop and the economies of scale, lower costs and greater efficiency they should bring. In the case of financial markets and financial centres, however, one does have to ask the question, ‘for whose benefit’? Financial services exist, as we would all agree, to serve the real economy by channeling savings to investment, by providing insurance and by facilitating economic activity and trade.