This article reviews some of the forces at work and the effects they are having, and looks briefly at the kind of developments we may expect to see in future. Over the past 25 years, world GNP has roughly doubled in real terms and world trade, again in real terms, has tripled. Although financial intermeditation is well recognised as, in the economist's jargon, a 'luxury good', meaning that demand can be expected to grow proportionately faster than income, these are nevertheless striking discrepancies. There have perhaps been two main factors. First, those same 25 years have seen extraordinary developments in technology, and especially in information technology.
Financial business is all about transferring, comparing, matching and reacting to information.
So it is hardly surprising that the IT revolution should have had a dramatic effect. Without modern IT and communications, we would not have global markets in foreign exchange, equities, derivatives, and so on in anything like their present form, nor would we have the capacity to process the transactions and make sure all the deals are settled in a reasonable time. It is perhaps also worth noting another dimension of technical innovation. This and a number of other analytical advances had a major impact on value added in the financial services industry, led to the arrival of the 'rocket scientist', and transformed the approach to risk management. Second, the period since the 'seventies has been one of widespread economic liberalisation, at both the national and the international level.