Title Page
Geoeconomic Fragmentation and the Future of Multilateralism
Prepared by Shekhar Aiyar, Jiaqian Chen, Christian Ebeke, Roberto Garcia-Saltos, Tryggvi Gudmundsson, Anna Ilyina, Alvar Kangur, Tansaya Kunaratskul, Sergio Rodriguez, Michele Ruta, Tatjana Schulze, Gabriel Soderberg, and Juan Pedro Trevino
SDN/ 2023/001
IMF Staff Discussion Notes (SDNs) showcase policy-related analysis and research being developed by IMF staff members and are published to elicit comments and to encourage debate. The views expressed in Staff Discussion Notes are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
2023
JAN
Copyright Page
2023 International Monetary Fund
SDN/2023/001
IMF Staff Discussion Notes
Research Department and Strategy, Policy, & Review Department
Geoeconomic Fragmentation and the Future of Multilateralism
Prepared by Shekhar Aiyar, Jiaqian Chen, Christian Ebeke, Roberto Garcia-Saltos, Tryggvi Gudmundsson, Anna Ilyina, Alvar Kangur, Tansaya Kunaratskul, Sergio Rodriguez, Michele Ruta, Tatjana Schulze, Gabriel Soderberg and Juan Pedro Trevino—with contributions from Tohid Atashbar and Rex Ghosh
Authorized for distribution by Pierre-Olivier Gourinchas and Ceyla Pazarbasioglu
January 2023
IMF Staff Discussion Notes (SDNs) showcase policy-related analysis and research being developed by IMF staff members and are published to elicit comments and to encourage debate. The views expressed in Staff Discussion Notes are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
ABSTRACT: After several decades of increasing global economic integration, the world is facing the risk of policy-driven geoeconomic fragmentation (GEF). This note explores the ramifications. It identifies multiple channels through which the benefits of globalization were earlier transmitted, and along which, conversely, the costs of GEF are likely to fall, including trade, migration, capital flows, technology diffusion and the provision of global public goods. It explores the consequences of GEF for the international monetary system and the global financial safety net. Finally, it suggests a pragmatic path forward for preserving the benefits of global integration and multilateralism.
RECOMMENDED CITATION: Aiyar, Shekhar, Ilyina, Anna, and others (2023). Geoeconomic Fragmentation and the Future of Multilateralism. Staff Discussion Note SDN/2023/001. International Monetary Fund, Washington, DC.
| ISBN: | 979–8-40022–904-6 |
| JEL Classification Numbers: | E42, E61, F02, F10, F13, F15, F20, F30, F33, F42, F60, H87, O10, Q34, |
| Keywords: | Geoeconomic fragmentation, globalization, global economic integration, geopolitical blocs, international monetary system, global financial safety net, multilateralism, costs of economic fragmentation, rules-based multilateral system. |
| Author’s E-Mail Address: | SAiyar@imf.org; AIlyina@imf.org; CEbeke@imf.org; RGARCIASALTOS@imf.org; mruta@imf.org |
| ISBN: | 979–8-40022–904-6 |
| JEL Classification Numbers: | E42, E61, F02, F10, F13, F15, F20, F30, F33, F42, F60, H87, O10, Q34, |
| Keywords: | Geoeconomic fragmentation, globalization, global economic integration, geopolitical blocs, international monetary system, global financial safety net, multilateralism, costs of economic fragmentation, rules-based multilateral system. |
| Author’s E-Mail Address: | SAiyar@imf.org; AIlyina@imf.org; CEbeke@imf.org; RGARCIASALTOS@imf.org; mruta@imf.org |
Contents
ACRONYMS/GLOSSARY
EXECUTIVE SUMMARY
I. INTRODUCTION
II. THE STATE OF GLOBAL ECONOMIC INTEGRATION
III. TRANSMISSION CHANNELS IV: THE INTERNATIONAL MONETARY SYSTEM
V. A WAY FORWARD
BOX
Box 1. Quantitative Estimates of Output Losses from GEF
FIGURES
Figure 1. Trade Openness, 1870–2021
Figure 2: Global Flows of Goods, Services and Finance
Figure 3: Global Production Structure: Selected Commodities, 2020
Figure 4: The Global Economic System, 1995 vs. 2019
Figure 5: Bilateral Goods Trade by Development Status, 1990–2021
Figure 6. Geopolitical Risks, Military Conflicts and Trade
Figure 7. Trade Restrictions Imposed
Figure 8. National Security Mentioned in IMF AREAER Reports
Figure 9. Mentions of Key Terms in Corporate Presentations
Figure 10. Growth of GDP and Trade, 1995–2014
Figure 11: Creditor Base for the PRGT countries: 1996 vs. 2020
Figure 12: Role of Major Currencies in the International Monetary System
Figure 13. U.S. Dollar Share of Global Foreign Exchange Reserves and the U.S. Dollar Index
Figure 14. Central Banks’ Demand for Gold and Foreign Holdings of U.S. Treasury Securities
Figure 15: Evolution of the Global Financial Safety Net, 1995–-2021
Figure 16. An Illustration of Pragmatic Approach to International Cooperation
Figure 17. Coverage and Data Availability for Selected Border and Behind-the-Border Trade Measures
REFERENCES
References
ANNEXES
Annex 1. Debt Reduction as Self-insurance
Annex 2. Risks of Fragmentation of the Global Payment System
Annex 3. Multilateral and Plurilateral Initiatives to Advance the Trade Agenda
Annex 4. International Frameworks for Consideration of Policy Measures Imposed for Security Reasons
Acronyms/Glossary
| AB | Appellate Body |
| AEs | Advanced Economies |
| AfCFTA | African Continental Free Trade Area |
| AML/CFT | Anti-Money Laundering/ Countering the Financing of Terrorism |
| AREAER | Annual Report on Exchange Arrangements and Exchange Restrictions |
| BIS | Bank of International Settlements |
| BSAs | Bilateral Swap Arrangements |
| CBDC | Central Bank Digital Currencies |
| CIPS | Cross-border Inter-bank Payment System |
| CLS Bank | Continued Link Settlement Bank |
| CMIM | Multilateral Currency Swap Arrangements |
| COVID-19 | Coronavirus Disease of 2019 |
| CPTPP | Comprehensive and Progressive Agreement for Trans-Pacific Partnership |
| DM | Digital Money |
| ECB | European Central Bank |
| EMs | Emerging Markets |
| EMDEs | Emerging Markets and Developing Economies |
| EU | European Union |
| FDI | Foreign Direct Investment |
| FTP | Financial Transaction Plan |
| FX | Foreign Exchange |
| GATT | General Agreement on Tariffs and Trade |
| GATS | General Agreement on Trade in Services |
| GEF | Geo-Economic Fragmentation |
| GDP | Gross Domestic Product |
| GFC | Global Financial Crisis |
| GFSN | Global Financial Safety Net |
| GVCs | Global Value Chains |
| IMF | International Monetary Fund |
| IMF IV | International Monetary Fund Institutional View |
| IMS | International Monetary System |
| LICs | Low Income Countries |
| MSMEs | Micro, Small, and Medium-Sized Enterprises |
| NTBs | Non-Tariff Barriers |
| OECD | Organization for Economic Cooperation and Development |
| PRGT | Poverty Reduction and Growth Trust |
| RFAs | Regional Financing Arrangements |
| RTFs | Regional Trade Arrangements |
| R&D | Research and Development |
| SIPS | Systemically Important Payment Systems |
| SOEs | State-Owned Enterprises |
| SPFS | System for Transfer of Financial Messages |
| SWIFT | Society for Worldwide Interbank Financial Telecommunication |
| TRIPS | Trade-Related Aspects of Intellectual Property Rights |
| UNGA | United Nations General Assembly |
| UNCTAD | United Nations Conference on Trade and Development |
| WTO | World Trade Organization |
| WWII | World War II |
This note was prepared under the general guidance of Pierre-Olivier Gourinchas, Ceyla Pazarbasioglu, Petya Koeva Brooks and Daria Zakharova and was led by Shekhar Aiyar and Anna Ilyina. The note benefitted from helpful comments from IMF departments. Lixue Chen provided valuable research assistance, while Rosana Paredes helped with administrative support.
