4. Safeguard independence and bolster the capabilities of international institutions, such as standard-setting bodies, to preserve their role in global financial governance International financial institutions (IFIs) provide many of the linkages holding the global financial system together. Independent global financial governance supported by standard- setting bodies, such as the CPMI, International Organization of Securities Commissions (IOSCO) and FSB, creates a predictable environment that enables financial actors to conduct long-term strategic planning. To maintain public trust, IFIs must demonstrate robust accountability through public consultation processes, detailed disclosure of decision-making procedures, stronger channels for stakeholder feedback and dispute resolution. Such measures help sustain confidence in the neutrality of IFIs, even during periods of geopolitical tension.53 5. Regulate and manage critical financial market infrastructures, but avoid politicizing or severing the underlying financial rails, given that these systems are essential for maintaining the integrity, functionality and efficiency of the financial system As the engine room of the global financial system, FMIs facilitate payments, settle and clear transactions, and manage securities deposits. Governmental interference in FMIs’ work can degrade their functionality and reduce the efficiency of the overall financial system. Legacy FMIs process a large majority of the financial system’s “traffic”. The SWIFT interbank messaging system, for instance, handled about 90% of global payment messages in 2020.54 While policy-makers should be empowered to regulate and monitor the activities that occur on financial system payment rails, including imposing sanctions, it is important to recognize that doing so may produce unintended consequences. For instance, policy measures that sever financial system payment rails could make it hard to lower cross-border payment costs in line with the G20 Cross-Border Payments Roadmap. Institutional fragmentation BOX 5 US and EU responses to Russia’s attack on Ukraine in 2022 brought questions about control of FMIs to the fore for some nations. After EU regulations disconnected several Russian banks from SWIFT, the use of alternative domestic infrastructures to process payments in Russia intensified. Russia’s System for Transfer of Financial Messages (SPFS), created in 2014, saw a 400% increase in annual transactions between 2022 and 2023.55 Discussions regarding a digital currency mechanism to enable cross-border payments received widespread attention at the BRICS Summit in 2024.56 Policy measures that sever financial system payment rails could make it hard to lower cross- border payment costs in line with the G20 Cross- Border Payments Roadmap Managing frozen assets BOX 4 US and European leaders deliberated whether to permanently seize nearly $300 billion in frozen Russian central bank reserves in 2023. The deliberations raised concern among some other nations, including Saudi Arabia, about whether their central bank reserves might be similarly vulnerable. Reporting suggested that one Saudi strategy to insulate its reserves would have involved reducing US dollar and euro holdings – measures that would have deepened fragmentation.51 Rather than seize the Russian central bank reserves, the G7 leaders opted to collateralize the future interest earnings on the frozen Russian reserves to finance a $50 billion loan to Ukraine.52Managing frozen assets BOX 4 US and European leaders deliberated whether to permanently seize nearly $300 billion in frozen Russian central bank reserves in 2023. The deliberations raised concern among some other nations, including Saudi Arabia, about whether their central bank reserves might be similarly vulnerable. Reporting suggested that one Saudi strategy to insulate its reserves would have involved reducing US dollar and euro holdings – measures that would have deepened fragmentation.51 Rather than seize the Russian central bank reserves, the G7 leaders opted to collateralize the future interest earnings on the frozen Russian reserves to finance a $50 billion loan to Ukraine.52 Navigating Global Financial System Fragmentation 26

Navigating Global Financial System Fragmentation 2025