FIGURE 6 Industrial policies – a deep dive Aspect GoalUS Inflation Reduction ActEU European Chips ActMade in China 2025Make in India Upgrade China’s manufacturing capabilities and reduce foreign tech relianceHelp US to reach climate goals, strengthen energy security and job market, reduce cost of healthcare Strengthen semiconductor industry in EU by ensuring resilience of supply chains and reducing external dependenciesBoost domestic manufacturing and attract foreign investment Manufacturing, information technology, energy, aerospace and maritime engineeringEnergy, manufacturing, healthcare, transportation, agricultureSemiconductors, information technologyManufacturing, electronics, textiles, automotive Investment volume~$300 billion planned investment by 2025 $369 billion allocated for energy and climate initiatives +€100 billion planned investment including +€43 billion public investments+$26 billion in incentives across various sectors Key sectors Source: Griffith Asia Institute. UNCTAD Investment Policy Monitor. Indian Ministry of Commerce & Industry. Oliver Wyman analysis Technological innovation can also accelerate the trend towards multipolarity. Over 90% of central banks are now exploring CBDCs, which could enable alternative payment channels that bypass traditional fiat-based systems.19 Examples include China’s e-CNY CBDC and the mBridge multi- CBDC platform for cross-border payments, which offer alternative platforms for financial connectivity. If countries begin to adopt wholesale CBDCs without first putting a harmonized and interoperable regulatory framework in place, the global financial system could see the emergence of multiple digital currency ecosystems.20 This could create a more fragmented international monetary system and pose financial stability risks.21 The institutional framework for global governance is also showing signs of strain. Since 2019, the WTO Appellate Body has been unable to issue decisions, resulting in countries pursuing more regional trade agreements, which accelerates the formation of regional trading blocs and drives fragmentation.22 Similarly, the G20 has faced challenges coordinating global responses on issues ranging from financial governance to the energy transition. Without greater international coordination, other forums such as such as the BRICS Intergovernmental Organization and Group of 7 (G7) may devise separate approaches. Specific examples are mentioned later in this report. These developments reveal that the success of global financial integration has made the underlying system a powerful geopolitical tool, but its unprecedented efficiency contributes to its vulnerability to the consequences of economic statecraft. Meanwhile, technological innovation offers new possibilities for creating parallel financial systems that could bypass or shift the existing global order. The challenge ahead lies in managing a more multipolar world and increasing fragmentation while still preserving the benefits of global financial integration that have facilitated decades of economic growth.redirect cross-border capital flows and increase regulatory divergence. In the past decade or so, all major economic powers have enacted new industrial policies, such as China’s Made in China 2025, the Inflation Reduction Act in the United States and the EU’s European Chips Act (see Figure 6). While the structure, scale and intent of such policies can vary, they all use a mixture of subsidies, investment restrictions, tariffs and export controls to foster industries or objectives viewed as essential to national interests.18 The challenge ahead lies in managing a more multipolar world and increasing fragmentation while still preserving the benefits of global financial integration that have facilitated decades of economic growth. Navigating Global Financial System Fragmentation 15

Navigating Global Financial System Fragmentation 2025