The global financial system connects institutions, regulators and technologies to facilitate capital exchange across borders. However, the current trajectory suggests that the 21st century may see a more fragmented financial architecture.
Countries are increasingly using the global financial system and trading systems to advance geopolitical and domestic political ambitions through sanctions, industrial policies and other economic measures. This risks fragmenting the global financial system into distinct or competing blocs. Fragmentation could have an economic cost of up to 5% of the global GDP annually.
This issue is the centerpiece of a World Economic Forum (WEF) report developed in collaboration with Euroclear, consultancy company Oliver Wyman, more than 25 other companies, academics and global finance leaders. It outlines eight principes for sustaining financial systems operations and market confidence, including the following.
- Respecting the rule of law and property owernship rights.
- Ensuring interoperability of parallel financial infrastructures.
- Regulate critical financial market infrastructures, but avoid politicising or severing the underlying financial rails.
The report represents a strong call to action from the financial services sector to protect the global financial system’s most essential elements, without undermining national security or sovereignty.
Collaboration between public and private sectors is essential to ensure capital flows seamlessly to where it is needed most.
