Designing Financial Resilience : Geopolitical Risk, Central Banking and Institutional Innovation in Emerging Economies

Abstract

Purpose - This study examines how geopolitical risks affect financial stability in emerging economies, with a particular focus on Indonesia, and explores how central banks can strengthen financial resilience through institutional innovation.

Design/methodology/approach - This conceptual study integrates perspectives from economics, geopolitics and institutional theory. It draws on Geopolitical Risk Theory, Institutional Resilience Theory, Macroprudential Policy Theory, Strategic Foresight Theory and Complex Interdependence Theory to develop a framework for central bank responses to geopolitical disruptions.

Findings - The analysis shows that geopolitical risks can affect Indonesia’s financial system through exchange rate volatility, capital flow reversals, inflationary pressures and supply chain disruptions. These challenges also expose the limitations of conventional monetary policy in responding to complex external shocks. In response, the study proposes a four-pillar resilience framework : Anticipate, Absorb, Adapt and Align.

Practical implications - The framework provides guidance for central banks and policymakers to strengthen geopolitical risk monitoring, develop more adaptive macroprudential policies, improve cross-sector coordination and strengthen regional and global financial cooperation.

Originality/value - This study contributes to the literature by linking geopolitical risk with central bank governance and institutional resilience. The Anticipate–Absorb–Adapt–Align (4A) framework provides a structured approach for strengthening financial preparedness and resilience in emerging economies facing increasing geopolitical uncertainty.

Keywords: Geopolitical risk; central banking; financial resilience; emerging economies; Indonesia; macroprudential policy; strategic foresight; institutional resilience