Navigating Global Financial System Fragmentation 2025

Financial integration has been the global economy’s growth engine for the past 75 years. Capital flows facilitate the exchange of goods and services, as well as the dissemination of new technologies, human capital and knowledge. This report’s quantitative analysis indicates that a future of fragmentation in the financial sector could erode such positive gains, whereas safeguarding interconnection can support global GDP growth. The analysis suggests that the financial sector’s role as an engine of global growth will become increasingly important in the years ahead, because it provides an essential framework for collaboration and joint problem-solving, regardless of the geopolitical landscape. Even amid geopolitical tensions or wars, global actors need mechanisms for financial exchange. Financial intermediation is driven by economic incentives, such as diversifying portfolios and hedging risks. As such, it offers a powerful tool for bringing actors together to address shared challenges, such as the energy and digital transitions, ageing populations and infrastructure investment, all of which require collective action. Policy-makers can support this positive vision for the financial system by leveraging cooperation around areas of broad geoeconomic consensus, such as combating money laundering and terrorist financing. Regularized interactions and shared wins around these themes can create momentum for deeper cooperation in more contentious areas. For example, the FATF’s success in fostering trust and transparency among policy-makers to counter financial crime could serve as a foundation for further initiatives. In instances where multilateral collaboration is not feasible, plurilateral initiatives offer a viable alternative. Such efforts mobilize a group of economies to provide benefits to all financial system actors. Positive economic statecraft measures can facilitate investment flows and increase regulatory harmonization. Such integration can lead to increased economic growth as businesses gain access to larger markets, consumers benefit from a wider range of goods and services, and cross- border cooperation accelerates innovation. This would also align broader ambitions of reducing costs for financial actors and increasing the financial system’s effectiveness by promoting greater regulatory interoperability. Ultimately, positive economic statecraft can help lay the foundation for sustainable economic development and resilience in the global economy.3.3 A positive vision for the financial systemarchitecture to better serve EMDEs is both ethically prudent and structurally necessary. Key reforms could include expanding EMDEs’ access to capital, potentially “unlocking $500 billion” annually through reform of the multilateral development banks (MDBs).69 Other changes might include increasing their representation in global financial institutions and strengthening their domestic financial infrastructure through targeted capacity-building.70 8. Protect the ability of firms to engage with actors across the geopolitical spectrum by structuring economic statecraft measures, standards and regulations on a multilateral basis, whenever possible Given that a certain degree of financial system fragmentation is likely to persist, financial institutions, including those in ascendent powers such as Brazil, Indonesia, Nigeria, Saudi Arabia and Türkiye, will want to continue to conduct business with counterparties and in countries across geopolitical blocs. This is true for large multinationals as well as small and medium-sized enterprises that lack the financial and subject matter expertise to navigate these complexities. To prevent a full decoupling of the global financial system into competing blocs, policy-makers should craft economic statecraft measures on a multilateral basis, building the broadest possible geopolitical coalitions. This will prevent third-party and domestic actors with legitimate business interests across jurisdictions from being unduly forced to sever their economic ties and choose between geopolitical rivals.. Policy-makers can revitalize the WTO and strengthen the global economic and financial regulatory landscape, including the G20, BIS, FSB and IOSCO, to safeguard countries’ “policy space, sovereignty and economic strength”.71 The financial sector will become increasingly important in the years ahead, serving as an essential bedrock for collaboration and joint problem- solving, regardless of the geopolitical landscape. Navigating Global Financial System Fragmentation 31