Description:
London's preeminence as a foreign exchange trading center is of recent vintage. Before World War I, there was little demand for foreign currencies by British banks, firms and investors, which conducted the majority of their cross-border transactions in sterling. Foreign currency transactions were mainly in dollars, reflecting the historical importance of the American cotton trade. Hence with the rise of dollar invoicing and settlement, London was well positioned as a venue for dollar transactions. This specialization in turn enabled it to become the leading center for Eurodollar deposits in the 1950s and the premier currency trading center following the removal of ex- change control in 1979. London's current preeminence is partly a reflection of this history: of the City's status as a financial center in the 19th century, of the worldwide role of sterling, and of a distinctive demand for dollar credit. It is partly a reflection of the readiness of regulators and financial associations to welcome competition from foreign financial firms. It is partly a reflection of the facility with which market participants adopted new trading and communications tech- nologies, again reflecting London's historic financial center status. Thus, the same factors that made for London's late start as a foreign exchange trading center contributed to its subsequent success.