Did you know that the financial centers for offshore businesses were actually established by onshore financial institutions (like banks and other private corporations)? This is because the onshore institutions felt too restricted by dated laws, rules and regulations, as well as statutes. They couldn’t maximize their companies. Citicorp, for example, felt this way and decided to go out of the US and establish their first offshore company. Soon, most of Citicorp’s net income (roughly 64% of it) came from their offshore sources.
What started out as an act of freedom for the onshore companies who felt restricted eventually became world-class and outstanding financial institutions. They became headquarters, even. Once they became successful, they started to create policies that were meant to attract foreign trade. They made policies that allowed business to minimize their tax liabilities as well as reduce or eliminate business restrictions. This change in the international trade market resulted into a very active economic movement.
Usually, such offshore financial centers are situated in small states with very little population. They are considered as tax havens. Currently, there are at least 75 tax havens existing all over the globe. Each haven is deliberately unique from other havens because they want to attract certain types of investors that they can cater to.
Let us take for example the island of Aruba. It was designed in a way that they can have fast economic development. They were solely depending on their oil refineries before for their source of revenue, but now, they created a new investment policy that allowed it to participate in the economic system throughout the world. This policy was becoming the offshore tax haven. In a sense, they “rented” out their laws about taxes, company incorporation and other business legalities, fully allowing them to go through with their economic development as well as diversification.
On the other side of the world, we can take a look at Singapore, who, unlike Aruba, was intended to help the dollar market of Asia. As evident today, Singapore has become a thriving money haven, and of the best too. Another tax haven is Bahrain and it was designed to serve the offshore needs of the Middle East, most especially the financial needs of Saudi Arabia.
Actually, if not for the electronic revolution caused by the EFT (electronic fund transfers) mechanisms back in early 70s, these offshore money havens would have never been possible. That very technological development made it very affordable to build banks and corporations, as well as holding companies in far-flung areas. Both inter and the intra time zone business also became a possible home-based business alternative when the EFT was launched.
This gave way to the establishment of wholesale banking on an international scale. It was possible to maintain large amounts of deposits in a wide range of currencies, as well as transfer the money in a vast global network of different corporations, financial institutions, individuals, and etcetera to those who are interested in borrowing money. It allowed the foundation of many new business practices for transnational transactions and led the development of international financial activities as well, such as subcontracting.
Today, it is evident that these international money havens have established a very permanent presence in today’s international economy. They have transformed from a mere financial center into “brokers” for global businesses. It really is important to never forget where all of this started with the initiative of large banks and financial institutions from all over the globe. Also remember that everyone, even the powerhouses like US, China and Japan, need to play their money on an international market. They use these havens as well for a more convenient financial transaction. Overall, it is noteworthy that the Bahamas has now become a very large offshore haven, if not the largest, because it has been designed for different purposes—may it be government use or intelligence agencies.
These havens are completely a part of the financial world and that is a known fact already. They are legitimate mediums where investors can rely for their offshore ventures. The manner it is done may change throughout time, but the goal of these havens will forever be the same—to flourish the international economy.