Monday, March 8, 2021

Where it all began. Amsterdam becomes Europe’s financial center again

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Amsterdam ousted London to become Europe’s largest stock trading center, taking trading back to where it all started.

In the early 17th century, the financial center of the world was not London, New York or Tokyo. It was a currency exchange building built by merchants on the Amstel River in Amsterdam. It was the time of the Dutch Golden Age, when its science, culture and commerce were among the most celebrated in the world.

Although stock certificates were first issued in 1288, when the Swedish copper mining company Great granted the bishop of Västerås 12.5% ​​ownership, it was not until the early 17th century that organized stock trading began to emerge.

It happened for the first time in Amsterdam, when the Dutch East India Company issued shares to the public for the first time. This was the first initial public offering (IPO) in the world and provided the capital to fuel the growth of this trading company to become one of the biggest multinationals of the time.

At its peak, the Dutch East India Company was worth more than Apple, Google and Facebook combined.

Two geographical factors played an important role in making Amsterdam an important financial center. A significant part of Holland’s famous plain used to be submerged, which meant that the Dutch used to lend money to finance land reclamation projects.

The Netherlands was also heavily urbanized, with a large number of people available and willing to invest their money.

Futures markets, which allow people to bet on the future price of certain assets, also emerged in Amsterdam during the 17th century, reflecting the growing sophistication of financial activities in the city.

The most notable activity focused on tulipa, which were transported to countries like Turkey. As prices for some flower bulbs reached extraordinarily high levels and then fell dramatically, the “tulip craze” is generally considered the first speculative bubble recorded in history.

The rise of London

Despite the early Dutch dominance in financial trading, organized stock trading took shape with the advent of Joint Stock Corporation Act in the United Kingdom in 1844. Along with the industrial Revolution, this spurred the growth of financial activities in London.

Locals and foreigners started making investments, which allowed the UK to meet the immense capital needs during the industrial revolution and was an integral part of the sustained productivity and welfare improvements that followed.

Later, other European cities also developed their own financial activities, driven by a incredible expansion of multinational trade.

What really made London a magnet for global financial activity was the “Big Bang” of 1986. Until then, the city’s stock exchange was limited to relatively small partnerships with stockbrokers, market makers and the like. However, on October 27, 1986, comprehensive reforms abolished several restrictions on financial transactions and competition, opening up trade to a range of new players, including foreigners.

The city of London became a global financial power and would grow more and more over the next 35 years.

The Brexit effect

The trade agreement signed between the United Kingdom and the European Union (EU) on Christmas Eve did not cover financial services. For now, London lenders have been prevented from certain activities, such as the trading of shares and bonds denominated in euros, which were mainly transferred to Amsterdam as a result.

Amsterdam is emerging as a winner because the city is home to the stock exchange’s operational headquarters Euronext. The origins of Euronext go back to the foundation of the Amsterdam Stock Exchange by the Dutch East India Company, which for some time has been the largest stock exchange in Europe.

To continue as a global power, the City of London expects UK and EU regulators reach an agreement on “equivalence”, which is a system the EU uses to grant foreign companies access to the domestic market in certain areas of financial services. However, the prospect of an agreement appears small.

Although the lasting effects of Brexit in London are unlikely to be known for years, the first day of business after the UK’s exit from the single market was a symbolic turning point.

Public data from 1 January showed that London lost almost 45% of normal volume. In addition to stocks and bonds, other affected markets include carbon trading, with € 1 billion in daily volumes being transferred to the Dutch capital.

Four hundred years after the beginning of the first era of Dutch financial preeminence, Amsterdam is once again home to the continent’s stock trading.

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