If a coffee shop can charge honest exchange rates, why can't everyone?

I wrote a post to this blog last autumn with the picture on the right in it, as we were warned of an imminent storm. So I thought I'd upload the same picture today. The beech tree in the middle of the right-hand photo was 'taken out' by a tree which fell from the left.

Anyway, so much for trees! 

I flew back from New York to London yesterday, to be greeted by the best weather of 2014. On the flight back I sat next to an American who, having been sent over  for a 6-month stint four years ago, is finally about to go back to the US for good. He told me how much he had enjoyed London as a place to bring up a young family - far more green space that New York, for starters. And we both agreed that if you earn your living in finance, Europe's is the time zone to be in.  

Language, time zone, the appeal of the city itself to the international traveller/worker, critical mass of talented people to hire: These are all reasons why London can maintain its position as a dominant centre of global finance, if the country wants to. Whether there's the will to promote London as a pre-eminent global city or as a centre of global finance, is a different question. 

Firstly, it's important to think about what being a pre-eminent financial centre actually means, in the new world order. Certainly, the UK should not aspire to resurrect a situation where its major banks are so big that a financial crisis can bankrupt the UK.  Resting the global finical system on the shoulders of the retail deposit-taking banks of a country as small as the UK is dangerously daft. So, making London the global hub for trade in money, needs to be engineered differently.  But the second issue is that if countries don't make the most of of their competitive advantages, they are doomed to live in the economic slow lane. 

I'd offer a few thoughts on the make-up of global finance in the years to come. Firstly, banks are becoming less important for lending. They are going to be dull, heavily-regulated deposit-takers which look after our money and use it to make safe, low-margin loans. The job of the financial industry will, more and more, be to match those who need access to money with those who have money to invest. That's something that the City used to be good at, before Big Bang. Secondly, money is going to go on moving around the world. If interest rates are going to be lower, on average, than they used to be (as suggested by the IMF, Fed Governors, of MPC members for that matter), then anyone saving for a pension will continue to have to take more risk to get the returns they want/expect/need for retirement. More money will be invested in  more exciting, but more volatile markets than UK Gilts, German Bunds or US Treasuries. Not just in the short-term but as long as the 'neutral' level of rates is lower than the 'trend' growth rate of the major economies. And finally, the trend towards globalisation hasn't stopped, and won't soon. Banking may become more balkanised where such lending as a UK bank undertakes, for example, is much more concentrated on the UK, but consumers can and will go on buying goods and service internationally. 

A centre for global non-bank finance; a centre of savings and asset management; a centre for cross-border trade finance, for insurance, for international law and accountancy. These are industries which, surely, London should be nurturing even as the size and risk profile of the banking system is realigned with the reality the UK's size. And if not, then we'd better come up with other industries which can compete internationally on a sufficient scale to create the jobs of the future, and start nurturing them. 

The challenge, is that these industries are changing incredibly fast, all the time. I haven't updated my Starbucks Index this week, because the price of coffee in New York hasn't changed, even if the price of beans has risen. But I did pay for a cup of coffee using an app on my phone, which automatically charged me in sterling. The Starbucks GBP/USD exchange rate last Friday was 1.7020, which to all intents and purposes is the same rate that an FX trading firm would charge its very best and biggest customers. It's a vastly better rate than you'll get if you change pounds for dollars at a bureau de change in Heathrow this morning, that's for sure. I haven't asked Starbucks about their FX charging policy, but I'm guessing they make enough margin a capuccinno to be more interested in selling as many of them as possible, than on fleecing global wandering caffeine  addicts on FX. But if Starbucks understands that getting me to buy coffee in their stores is what matters, how long will it take credit card companies, hotel chains, car rental firms and others to figure it out, too? At some point, even banks are going to work out that the exchange rates they charge in ATMs annoy their customers.