September 2022: SUERF Policy Brief – The rise of cross-border financial centres

By Pamela Pogliani, Philip Wooldridge

Cross-border financial centres (XFCs), which cater predominantly to non-residents, are important intermediaries of international financial flows. Considering the size and nature of XFCs’ activities, it is useful to distinguish them from other countries when analysing capital flows and interconnectedness. XFCs’ defining feature is that both their external assets and their liabilities are exceptionally large compared to the size of their economy. While countries identified as XFCs vary with time and different measures of activity, in 2020 a core set of 7 countries clearly stood apart. XFCs’ importance is underpinned by geography and institutional characteristics, but regulation and taxation also have a significant influence. The large share of foreign direct investment in XFCs, mainly in the form of funds that only pass through, is indicative of substantial activity motivated by tax considerations.

The rise of cross-border financial centres