6. Ensure that parallel financial market infrastructures are interoperable to facilitate optimal transactions and market efficiency With geopolitical tensions on the rise, proposals such as a new cross-border digital currency payment mechanism developed by the BRICS countries could signal the beginning of a broader trend among countries “seeking to reduce their dependency on Western payment systems”.57 To prevent the emergence of distinct financial blocs operating on separate payment rails, it is critical that new FMIs are interoperable and also preserve interoperability with new and existing systems. Policy-makers and stakeholders could proactively leverage the existing financial governance systems, develop standardized protocols for data and transaction exchanges, ensure the interoperability of frameworks and implement mechanisms for ongoing monitoring of the infrastructures. The G20’s Roadmap for Enhancing Cross-Border Payments represents one ongoing policy effort to ensure such interoperability. 7. Structure domestic and multilateral policies and financial regulations to support financial stability and ensure cross-border flows of capital, data, goods, people and ideas In today’s interconnected financial landscape, regulatory and monetary policy decisions typically have ripple effects far beyond the boundaries of any single country. Protecting this interconnected financial landscape carries upsides for governments and the private sector alike, including access to a global financial safety net that can enhance resilience against shocks. To safeguard the continuous operation of this system, governments can develop mutual recognition mechanisms that, where possible, align new regulations and emerging policies with international norms and existing standards. This may help avoid the emergence of an incoherent patchwork of conflicting and overlapping policies worldwide as well as the risk of extraterritorial enforcement. Integrating new technologies, digital assets and fintech into the existing regulatory landscape can ensure that the financial system remains adaptive and forward-looking.58 8. Shield the independence of fiscal and monetary policy to promote financial stability, reduce the risk of competitive interference and increase opportunities for transparent decision-making Divergence between monetary and fiscal policies may result in diminished trust and stability within the financial system. Given concerns that greater fragmentation could drive inflation, nations will need robust monetary policy measures to maintain financial stability. Policy-makers can support the independence of central banks and foster greater policy cohesion among them.59 This can be achieved through coordination and increased dialogue facilitated by institutions like the BIS. Without such transparency and regularized communication – the US Federal Reserve’s Jackson Hole Economic Symposium and G20 central bank meetings are examples of existing fora – costly miscalculations can increase the risk of escalatory spirals, such as competitive devaluations. Navigating Global Financial System Fragmentation 27

Navigating Global Financial System Fragmentation 2025