Navigating Global Financial System Fragmentation

The report warns that geoeconomic fragmentation could result in global GDP losses of up to $5.7 trillion and increased inflation. It argues that while the US dollar remains central, the system is shifting toward multipolarity, driven by the use of economic statecraft and industrial policies. To mitigate these risks, the authors propose eight safeguarding principles and eight rules of engagement for policy-makers, emphasizing the need for interoperable financial market infrastructures and reformed support for emerging market and developing economies (EMDEs).

• Geoeconomic fragmentation is projected to have a significant negative impact on global economic output, with short-term losses estimated between $0.6 trillion and $5.7 trillion, representing approximately 5% of current global GDP.
• Financial fragmentation acts as a driver of inflation; a scenario where the global financial system decouples into two distinct blocs could increase global inflation by more than 5%.
• Emerging markets and developing economies (EMDEs) are disproportionately affected by fragmentation, with potential GDP losses of nearly 11% for those excluding China and Russia.
• The US dollar is expected to maintain its dominance for the foreseeable future due to strong fundamentals and network effects, although its share of global reserves declined from 71% in 1999 to 58% in 2024.
• The report identifies a shift toward multipolarity accelerated by the use of economic statecraft, such as the Western sanctions on Russia in 2022 which involved freezing nearly $300 billion in central bank reserves.
• Technological innovations, specifically central bank digital currencies (CBDCs), could create parallel financial systems and increase fragmentation if they are adopted without harmonized and interoperable regulatory frameworks.
• The report proposes eight 'Principles to Safeguard the Global Financial System from Fragmentation,' which include upholding the rule of law, respecting property rights, and avoiding the unilateral expropriation of sovereign assets.
• To operationalize these principles, the report suggests 'Rules of Engagement for Responsible Economic Statecraft,' such as using a 'small yard and high fence' strategy to limit the impact of restrictions to sensitive industries.
• Reforming multilateral development banks (MDBs) could potentially unlock $500 billion in annual lending to better support EMDEs.

APA

World Economic Forum (2025). Navigating Global Financial System Fragmentation. https://reports.weforum.org/docs/WEF_Navigating_Global_Financial_System_Fragmentation_2025.pdf

Chicago

World Economic Forum. Navigating Global Financial System Fragmentation. 2025. https://reports.weforum.org/docs/WEF_Navigating_Global_Financial_System_Fragmentation_2025.pdf.

Wikipedia

{{cite report |author=World Economic Forum |title=Navigating Global Financial System Fragmentation |date=January 2025 |url=https://reports.weforum.org/docs/WEF_Navigating_Global_Financial_System_Fragmentation_2025.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{worldeconomicforum2025navigating, author = {{World Economic Forum}}, title = {{Navigating Global Financial System Fragmentation}}, institution = {World Economic Forum}, year = {2025}, month = jan, url = {https://reports.weforum.org/docs/WEF_Navigating_Global_Financial_System_Fragmentation_2025.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }