The positive contributions of small international financial centres
Informing the global debate
Trillions of dollars flow annually through small International Financial Centres, such as the Cayman Islands, Luxembourg, Jersey, the British Virgin Islands and Bermuda. These flows are not invested directly in these small IFCs, but rather are aggregated and channeled into investments across the globe.
Such flows exist in large part because these small IFCs, constrained by their small landmass as well as an absence of natural resources and other economic factors of production, have successfully focused on the development of efficient and responsive regulatory environments that best match the preferences of rational and sophisticated consumers of financial services.
These specific attributes of efficiency and responsiveness provided by such small IFCs incorporate legal and commercial certainty as well as relatively low-cost tax-neutral platforms designed to facilitate connections between and among sources of capital and entities
which use capital. Such platforms serve to reduce the cost of credit intermediation and facilitate mechanisms for efficient capital structuring thereby lowering capital and risk mitigation costs. The reduced cost of capital along with less expensive risk mitigation, allows for more capital to be applied to innovation, entrepreneurship and job creation on a global basis. The allocative efficiency benefits provided by small IFCs ultimately serve the interests of all.
However, small IFCs have made relatively little effort to inform the global discussion on the important benefits they provide, and in this vacuum, periodically the policy narrative emanating from the G-20/EU jurisdictions has been critical of the role small IFCs play in facilitating the efficient cross-border flow of capital. This article is intended to provide an introduction to the ongoing contributions of small IFCs to the global financial architecture.
Performance issue 12 - September 2013
Performance is a triannual digest, dedicated to investment management professionals, which brings you the latest articles, news and market developments from Deloitte’s professionals and clients.