Magazine article American Banker

New York Is Great Because Nation Is: It Has the Economy, the Currency, the Stability, and the Players

Magazine article American Banker

New York Is Great Because Nation Is: It Has the Economy, the Currency, the Stability, and the Players

Article excerpt

"New York is New York -- is there anywhere else?" A huge sign carrying this quintessential New York question used to greet visitors arriving by helicopter in downtown Manhattan.

In financial terms, there evidently are other places. But, New York has quite clearly become the leader or co-leader among them. And an analysis of its strengths and weaknesses, and of what is being done to enhance the former and diminish the latter, indicated that, if New York is not absolutely preeminent already, it probably soon will be.

American Banker's survey shows that newcomers keep coming over, from just about all over the world.

Interviews with a number of top bankers, American and foreign, commercial and investment, suggest that the city enjoys six special sources of strength:

* In financial terms, it represents the world's most important economy.

* It represents the world's most important currency.

* It also represents one of the world's strongest currencies.

* It represents the world's most important safe haven for investment.

* It brings the financial, money, and investment markets together.

* It has achieved "critical mass."

Several of these factors, of course, are intermingled and interrelated. But to get a true picture of why New York is such a vital financial center, it is necessary to look at them separately as well as together.

Pride of place naturally goes to the sheer strength of the U.S. in economic terms. New York "is the financial capital of the United States, which is the world's most vigorous economy, "says Dennis Weatherstone, chairman of the executive committee of Morgan Guaranty Trust Co.

While almost everyone is aware that the U.S. has the biggest economy of any country on earth, not everyone realizes just how big it is -- or how it drawfs every other economy. A few gross national product figures are all that is needed to make the point. For 1983, that of the U.S. was $3.4 trillion. That of Spain -- a big country, with a population of nearly 40 million people -- was under $200 billion.

The importance of the economy naturally translates into the importance of the currency. To an always increasing extent, the dollar is becoming the currency in which international business is done. One example: oil. Petroleum and derivatives are invariably quoted, and paid for, in dollars. The fact that the value of petroleum sales has increased more than tenfold since the early 1970s has enormously added, not unnaturally, to the importance of the dollar as a trading vehicle.

To take another example: the balance-of-payments deficit of the U.S. towers above the deficits of other nations to an even greater degree than its GNP overshadows their output. The only other industrialized countries with payment deficits of more than $2.5 billion in 1983 were Spain and Italy, and theirs were only a little over $2.5 billion. The U.S. deficit: $38 billion. That shortfall, of course, has to be financed -- in dollars. Says Brian Pearse, chief executive of Barclays North America, "You're back to dollars all the time -- even the American balance-of-payments deficit floods dollars on to the world market.

Despite the current account deficit, and the even larger trade deficit that lies behind it, and despite the fact that both are expected to grow vertiginously, the dollar remains one of the world's strongest currencies. Since October 1980, it has strengthened 34% against such a strong currency as the Deutschemark, and 42% against such a relatively weak one as the pound sterling.

The fact of the dollar's strength, it goes almost without saying, is a key factor in the U.S. trade deficit. It allows many foreign goods to be imported which would not, with a weaker dollar, be competitive with domestic products. Whether the trade deficit reciprocates by lending strength to the dollar is more debatable -- though in one sense it certainly makes a contribution: it is a key factor in keeping down U. …

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