the united states is completely dependent on imports for at least 14 critical minerals. [ 3 ] and europe depends on china for 98 % of its rare earth supply. [ 4 ] supply disruptions on these fronts could affect critical sectors in the economy, such as the automobile industry and its transition to electric vehicle production. in response, governments are legislating to increase supply security, notably through the inflation reduction act in the united states and the strategic autonomy agenda in europe. but that could, in turn, accelerate fragmentation as firms also adjust in anticipation. indeed, in the wake of the russian invasion of ukraine, the share of global firms planning to regionalise their supply chain almost doubled – to around 45 % – compared with a year earlier. this “ new global map ” – as i have called these changes elsewhere [ 6 ] – is likely to have first - order implications for central banks. one recent study based on data since 1900 finds that geopolitical risks led to high inflation, lower economic activity and a fall in international trade. [ 7 ] and ecb analysis suggests similar outcomes may be expected for the future. if global value chains fragment along geopolitical lines, the increase in the global level of consumer prices could range between around 5 % in the short run and roughly 1 % in the long run. these changes also suggest that a second shift in the central bank landscape is taking place : we may see the world becoming more multipolar. during the pax americana after 1945, the us dollar became firmly ensconced as the global reserve and transaction currency, and more recently, the euro has risen to second place. [ 9 ] this had a range of − mostly beneficial − implications for central banks. for example, the ability of central banks to act as the “ conductor of the international orchestra ” as noted by keynes, or even firms being able to invoice in their domestic currencies, which made import prices more stable. in parallel, western payments infrastructures assumed an increasingly global role. for instance, in the decade after the berlin wall fell, the number of countries using the payments messaging network swift more than doubled. [ 11 ] and by 2020, over 90 % of cross - border transmissions were being signalled through swift. but new trade patterns may have ramifications for payments and international currency reserves. in recent decades china has already increased over 130 - fold its bilateral trade in goods with emerging markets and developing economies, with the country also becoming the world ’ s

– we could then see a virtuous circle of lower volatility, lower inflation, higher investment, and higher growth. but if fiscal policy instead focuses mainly on supporting incomes to offset cost pressures ( in excess of temporary and targeted responses to sudden large shocks ), that will tend to raise inflation, increase borrowing costs and lower investment in new supply. in this sense, insofar as geopolitics leads to a fragmentation of the global economy into competing blocs, this calls for greater policy cohesion. not compromising independence, but recognising interdependence between policies, and how each can best achieve their objective if aligned behind a strategic goal. we could see the benefits of this in europe especially, where the multiplier effect of common action in areas such as industrial policy, defence and investing in green and digital technologies is much higher than member states acting alone. there is another benefit, too : achieving the right policy framework will not only determine how our economies fare at home, but also how they are viewed globally in a context of greater “ system competition ”. and while the international institutions established in the wake of bretton woods remain instrumental for fostering a rules - based multilateral order, the prospect of multipolarity raises the stakes for such internal policy cohesion. for a start, an economic policy mix that produces less volatile growth and inflation will be key in continuing to attract international investment. although 50 - 60 % of foreign - held us short - term assets are in the hands of governments with strong ties to the united states – meaning they are unlikely to be divested for geopolitical reasons [ 20 ] – the single most important factor influencing international currency usage remains strength of fundamentals. by the same token, for europe, long - delayed projects such as deepening and integrating our capital markets can no longer be viewed solely through the lens of domestic financial policy. to put it bluntly, we need to complete the european capital markets union. this will be pivotal in determining whether the euro remains among the leading global currencies or others take its place. central banks also have an important role to play here – even as protagonists. for example, the manner in which swap lines are used could influence the dynamics of major international currencies. [ 22 ] both the federal reserve and the ecb, within their respective mandates, have been proactive in providing offshore liquidity when recent crises have hit. but others are moving too, which is