UAO Research · May 2026 · Geopolitics & Capital Flows · A Universal Asset Owners special report
For most of the post-Cold-War era, a universal owner could treat the world as a single, integrating market and allocate accordingly. That assumption is breaking down. Capital is beginning to move along geopolitical lines, central banks are quietly diversifying their reserves, and the institutions that hold a piece of everything now have to allocate across a map that is fragmenting in slow motion. The clearest signal is in the world's most conservative money: the US dollar's share of disclosed official reserves has fallen to about 56.8%, down from a peak near 72% in 2001 (Currency Composition of Official Foreign Exchange Reserves (COFER), International Monetary Fund.). The dollar is not being dethroned. But the direction of travel is unmistakable, and it tells a universal owner something about where the system is heading.
What the evidence says
Three data points anchor the fragmentation thesis. First, reserve diversification: the dollar's gradual decline in COFER has not gone to a single rival currency but has been spread across a basket of smaller currencies and, increasingly, gold. Second, the gold bid: central banks bought more than 1,000 tonnes of gold in each of 2022, 2023 and 2024, and a still-substantial 863 tonnes in 2025 — a sustained, official-sector vote for a reserve asset that no other government controls (Gold Demand Trends Full Year 2025 — Central Banks, World Gold Council.). Gold has more than doubled as a share of official reserve assets, to over 23%, partly on price and partly on accumulation. Third, the policy backdrop: the IMF has formally analysed "geoeconomic fragmentation" — the splintering of trade, technology and capital along strategic lines — as a structural risk to the global economy, and reserve managers are acting on it (Dollar's share of reserves held steady when adjusted for FX moves, IMF, 2025.).
Taken together, these suggest the official sector is hedging the very system it underwrites — diversifying away from concentration in any single jurisdiction's assets, slowly and without drama.
Where it is contested
How far this goes is genuinely uncertain. Dollar bulls point out, correctly, that there is no credible replacement: the euro is structurally incomplete, the renminbi is not freely convertible, and the dollar's network effects in trade invoicing and capital markets remain dominant. The IMF itself has noted that, adjusted for exchange-rate moves, the dollar's reserve share has been more stable than the headline decline implies. The opposing case is that fragmentation does not require a new hegemon — it requires only that capital becomes less willing to flow freely across blocs, which raises the cost of capital, lowers diversification benefits, and reprices political risk. Whether the gold accumulation reflects strategic de-dollarisation or simply prudent diversification at a time of high geopolitical risk is, honestly, not yet separable in the data.
From the allocator's seat
For a universal owner, fragmentation reintroduces a variable that a generation of allocators was able to ignore: that the jurisdiction of an asset, not just its asset class, is a risk factor. The practical responses are about resilience rather than retreat. It argues for explicitly mapping portfolio exposure by geopolitical bloc and stress-testing for a world where capital moves less freely across them — including the tail risk of sanctions or capital controls on assets the fund holds. It raises the strategic value of real assets, gold and other claims that are less dependent on a single jurisdiction's goodwill. It puts a premium on the funds — sovereign and pension alike — that can operate across blocs without becoming captive to any one of them. And it changes the diversification calculus: if cross-bloc correlations rise in stress, the diversification a global portfolio assumes may be smaller than the historical data shows.
What to watch next
Watch quarterly IMF COFER releases for whether the dollar's reserve share keeps grinding lower. Watch the World Gold Council's central-bank data for whether official gold buying re-accelerates past 1,000 tonnes. Watch the IMF and BIS work on geoeconomic fragmentation for harder estimates of its cost to growth and capital flows. And watch the behaviour of the largest sovereign funds: where they are willing — and no longer willing — to invest is the most direct readout of how fragmented the world of capital has actually become.
Sources
- Currency Composition of Official Foreign Exchange Reserves (COFER), International Monetary Fund.
- Dollar's share of reserves held steady in Q2 when adjusted for FX moves, IMF, 2025.
- Gold Demand Trends Full Year 2025 — Central Banks, World Gold Council.
- The International Role of the U.S. Dollar — 2025 Edition, Federal Reserve.
UAO Research. AI-assisted monitoring and drafting; reviewed and edited by the UAO editorial desk before publication. Not investment advice.