WASHINGTON, April 5 (Reuters) - Rising geopolitical tensions and the resulting fragmentation of the global economy could increase financial stability risks, reducing cross-border investments, asset prices, payment systems and banks' ability to lend, the International Monetary Fund said on Wednesday.
Such7 stability risks are driven through financial channels, IMF researchers said in the paper, prepared for next week's IMF and World Bank spring meeting as part of the Global Financial Stability Report.
The paper cited research using the U.S.-China divergence in UN Security Council voting since 2016 as a proxy for rising geopolitical tension between an investing and a recipient country.
Countries also should strengthen regional safety nets, through currency swap lines or precautionary credit lines from international financial institutions such as the IMF.
Economies also reliant on external financing should build stronger buffers of international reserves, capital and liquidity buffers at financial institutions, the paper said.