The deepening fragmentation of the global financial system is fraught with significant losses. According to the World Economic Forum risks report, losses from fragmentation could be as much as $5.7 trillion (5% of global GDP). What are the consequences of de-globalization, and what challenges is the financial sector likely to face? Are digital tools a consequence or a driver of disintegration? How long will this anti-inclusivity trend persist? Experts addressed these issues as well as other relevant aspects of de-globalization during a conference, Financial System and Economic Growth, on March 18 at Russia’s RUDN University, hosted by the Department of Finance and Credit of the RUDN School of Economics.
A trend for decades
Most experts use the term ‘active phase of de-globalization’ referring to the 2020s, when many global supply chains were disrupted due to the pandemic. However, it would be more accurate to pinpoint a much earlier date, namely 2008, as the beginning of disintegration processes, notes Professor Artem Genkin, CEO of Consulting & Analytical Union. Furthermore, the expert elaborates that this effectively constitutes a novel historical phase of capitalism, characterized by fundamental discriminatory protectionism, accompanied by the increasingly active deployment of global restrictive measures such as sanctions, including those targeting the financial sector.
“The world began to ‘bristle up’ from 2008 onwards, and the escalation of sanctions through financial, rather than military, means began to intensify precisely then. Sanctions against the financial sector are, in my view, a logical development and one of the principal instruments of this new phase,” notes Artem Genkin.
This period coincides with the confluence of two trends: a decline in the share of global trade in world GDP and a consistent annual increase in the number of new restrictive measures. These measures affect dozens of countries worldwide; for instance, between 1950 and 2023, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) imposed sanctions on 34 countries, including 12 European nations and China.
No inclusivity
The ramifications of de-globalization are extensive and not limited to these challenges, encompassing reduced economic efficiency, elevated production costs, and a deceleration of global growth. Among the most sensitive consequences is the contraction of financial inclusion, a trend both supported and amplified by barriers associated with digital technologies. A range of restrictions contribute to the creation of unequal access to financial services, both for individual economic agents and national economies, according to Artem Genkin. This spectrum of limitations is broad, ranging from traditional factors, including unequal access to infrastructure, the level of digital literacy, or socio-cultural elements, to novel drivers of digital inequality, such as sanctions or “cancel culture.”
“One technology with multifaceted potential that can also serve as a precursor to the restriction of inclusivity, is the technology of programmable (‘colored’) money,” Artem Genkin clarifies.
As a result of technological disruptions, and even more so due to deliberately induced restrictions, such as at the state level (as seen in China’s social credit system), it becomes technologically feasible to deny millions of economic subjects access to financial services, including basic ones.
Inflation as a consequence
Participants at the conference also addressed the repercussions of de-globalization, with inflation being its prominent manifestation. Experts drew attention to its implications for the Russian economy. Vladislav Gridchin, Deputy Head of the Central Bank of Russia’s Central Federal District Directorate, focused on the public quantitative inflation target, which remains at 4%.
He also noted the fundamental principles of the Central Bank’s monetary policy within the inflation-targeting framework. These include a floating exchange rate, decision-making guided by macroeconomic forecasts, and a commitment to transparency. Additionally, he emphasized the role of the key interest rate in regulating aggregate demand to curb inflation and support the economy’s return to sustainable, balanced growth. However, according to Rosstat estimates, inflation remains elevated, surpassing 9.5% by the end of 2024.
Conference participants also shared their projections on the country’s inflation outlook. According to the macro forecast, inflation in 2025 could range between 7% and 10%, noted Natalya Lukashova, Head of the Reporting and Financial Data Department at VTB Bank.
Digital finance
Amid increasing pressure on financial markets, more countries are prioritizing the development of their own technological financial sovereignty. A key aspect of this trend is the rapid growth of digital assets and currencies, which serve as decentralized alternatives to traditional financial instruments.
Moinak Maiti, the first professor of the Rand Foundation Chair in Finance at the University of the Witwatersrand (South Africa), highlights that Bitcoin’s market capitalization is comparable to that of Saudi Aramco, the world’s largest oil company, and is approaching NVIDIA’s valuation. He also notes that major economies like the United States and China are actively investing in the leading cryptocurrency.
According to Maiti, interest in such investments has surged due to the growing volatility of fiat currencies and the scarcity of traditional assets that can reliably prevent financial losses. He also underscores the efficiency gains offered by digital currencies, such as stablecoins, which significantly reduce settlement times.
At the same time, individual countries’ markets may emerge as new hubs for digital financial instruments, influenced by local regulations, which also contributes to greater global disintegration.
Barriers to new integration
De-globalization is further fueled by barriers that hinder the formation of new economic or technological unions, particularly as opposed to dominant regions like Europe and North America, as well as their respective currencies.
The economies that could potentially unite to counterbalance these dominant regions are not integrated, according to Igor Shokin, lead researcher at the Laboratory of Macrofinance Research and Forecasting at the Institute of Economic Forecasting of the Russian Academy of Sciences. For instance, efforts to consolidate the agrarian economies in Central America have failed, while the prospects for economic integration in the Persian Gulf remain uncertain.
“A single currency or unified economy is not feasible. These are parallel economies, with similar production structures, consumption patterns, and export profiles,” the expert explains.
In contrast, existing economic associations are characterized by real cross-border production and technological networks, where companies located in different countries distribute production roles, creating a unified system that requires formal recognition, Shokin clarifies.
Complete fragmentation or new alliances?
Should we expect increased de-globalization, which could lead to some drastic consequences such as reduced trade and a drop in national economic efficiency? Or will we see new large-scale alliances forming? Or could globalization take on a new form, with technology and intellectual products replacing physical goods in international trade, bypassing customs statistics?
At the very least, such new associations are likely to form around emerging “centers of power” at the global arena. Examples of such entities in history include the Council for Mutual Economic Assistance (Comecon).
“It is likely that unequal associations or blocs will form around an economic or technological dominant economy, with the People’s Republic of China potentially stepping into this role today,” Igor Shokin notes.
Rather than extensive reverse globalization, the world is more likely to experience regionalization, according to Artem Genkin. He believes that the global space will hardly turn into a “global village.”
“Instead, the world will divide into multiple blocs, each with favorable trade conditions,” Artem Genkin concludes.
Yet, he believes that local discriminatory financial measures will persist, although businesses and the society will become increasingly adept at adjusting to these changes.