Navigating Global Financial System Fragmentation 2025

Honing collaboration Coordination in practice BOX 8 BOX 9The embezzlement of funds from Malaysia’s sovereign wealth fund, 1Malaysia Development Berhad, has led to strengthened cross-border cooperation among financial regulators from Malaysia, Singapore the US and other countries to combat money laundering more effectively in the future.66 In November 2023, a ransomware attack on a major Chinese bank “disrupted trading in the US$25 trillion Treasury market”.67 The attack demonstrated how existing intergovernmental communication channels could facilitate ad-hoc crisis coordination and mitigation. Chinese and US policy-makers aligned their responses in bilateral calls and worked closely with the relevant regulators and affected banks to prevent significant financial spillovers from the ransomware attack.6. Promote global financial stability through heightened coordination among major financial powers via transparent data sharing and inclusive decision-making to minimize negative spillovers and prevent system fragmentation Transparent data sharing and inclusive decision- making are mechanisms to enhance stability, regardless of geopolitical context. Global financial powers, including the United States, China, the EU and India, can safeguard the financial system’s stability through more effective coordination. G20 ministerial meetings, the IMF and working-level bodies, including the BCBS, represent coordinating institutions that can offset the risk of geoeconomic-driven fragmentation and facilitate multilateral efforts. urgent need for global cooperation. Intergovernmental international organizations, such as FATF, facilitate such collaboration around financial crimes by “establishing international standards and performing reviews to assess nations’ compliance with anti-money laundering/ combating the financing of terrorism (AML/CFT) procedures”.65 It is vital that such institutions continue to operate with integrity and autonomy, regardless of geopolitical relationships. 7. Reform the global financial system to reflect 21st-century geopolitical and macroeconomic dynamics and provide greater benefits to EMDEs, promoting inclusive economic growth and stability The global economic landscape is shifting, with Asia driving an increasing share of GDP growth and nine African countries ranking among the world’s 20 fastest-growing economies in 2024.68 While some emerging economies have benefited substantially from the global financial architecture of the past 50 years, many EMDEs remain disadvantaged by high capital costs and debt burdens, and financial system fragmentation will likely affect them disproportionately. Given these dynamics, adapting the global financial Navigating Global Financial System Fragmentation 30