The dollar system rests not on gold and not on "unshakable foundations." It rests on a series of concrete decisions that concrete people made in concrete years. To understand why the dollar and the yen are more tightly linked in 2026 than we like to think, you have to trace five such stories — from Bretton Woods to digital collateral.
These are not terms and not definitions. They are stories about dates, mistakes, and consequences. After them, the main article — Part 2 — falls into place on its own: you will see how all five threads weave into one.
Chapter 1 · 1944 → 2024. How debt became collateral
In July 1944, 44 countries gathered in the American town of Bretton Woods. World War II was not over, but the victors were already dividing the world. The key question: what would world trade rest on now? Before the war, every country pegged its currency to gold, but there was not enough gold — most of it sat in the US and the USSR.
The decision: the dollar becomes world money. Anyone holding a dollar could come to the US and exchange it for gold at a fixed price ($35 per ounce). Other currencies are pegged to the dollar. The dollar is pegged to gold. It worked for almost 30 years.
On 15 August 1971, President Richard Nixon went on television: "I am directing the Secretary of the Treasury… to temporarily suspend the convertibility of the dollar into gold." From that moment the dollar was backed by nothing but trust in the American government. The world did not collapse, but the foundation changed: the dollar now rested not on gold but on habit and the strength of the American military.
The 1980s: deregulation and the growth of financial markets
President Reagan and Fed chair Paul Volcker raised rates to 20% to beat inflation and loosened regulation of the financial sector. Derivatives, swaps, and securitization appeared. And it was then that US government bonds first became "more than just debt": banks began using them as collateral — first for ordinary loans, then for derivatives trading, then for everything.
2008: Lehman collapses
On 15 September 2008, a bank with a 158-year history went bankrupt. In two weeks, global stock markets lost about $10 trillion and lending froze. Regulators understood: if trust in private institutions can vanish in a day, the treasury — more precisely, its debt — has to replace that trust.
Then came a wave of reforms: Basel III (2010–2014), the LCR ratio, Dodd-Frank, EMIR. They all said the same thing in different words: "Hold only what is safest. What counts as safe? Government bonds. Whose? American, German, British. By default, American."
| Year | Event |
|---|---|
| 1944 | Bretton Woods. The dollar — world money, pegged to gold. |
| 1971 | Nixon detaches the dollar from gold — it becomes a "promise." |
| 1980s | Deregulation. Government bonds begin to be used as collateral. |
| 2008 | Lehman collapses. The world learns: private banks cannot be trusted. |
| 2010–2014 | Basel III, LCR, Dodd-Frank: "Hold only government bonds." |
| 2024 | $28+ trillion of Treasuries — the world's single safe collateral. |
Chapter 2 · 2008 → 2025. How the Fed became hostage to the government
In September 2008 the Federal Reserve had two buttons: the interest rate (around 2%) and the printing press, which had barely been used before. Fed chair Ben Bernanke pressed both. The rate was cut to near zero, and in parallel the Fed began buying government bonds and mortgage paper — first $600 billion, then $1.7 trillion, then more. It was called "quantitative easing" (QE).
In May 2013, Bernanke merely hinted at tapering, and markets fell 5–10% within days — the "taper tantrum." It became clear the market already depended on these inflows.
QE was ended in 2014; in 2015–2018 the Fed cautiously raised rates and began shrinking its balance sheet (QT). And immediately, in September 2019, the repo market spiked — banks lacked liquidity, and the Fed injected $300 billion in an emergency. It was the first signal: "tapering" would not work.
In March 2020 came COVID: rates back to zero, "unlimited" QE, $5+ trillion in direct government payouts, and a budget deficit of $3.1 trillion — larger than the entire UK GDP. Inflation then spiked to 9%, and the Fed began aggressively raising rates — from zero to 5.25% in a year and a half, combining this with QT for the first time in history.
2025: the stop
By early 2025 the liquidity cushion in the "reverse repo" (ON RRP) had fallen to near zero, and each new T-bill issue began pulling reserves directly out of banks. The Fed hit its "lowest comfortable level of reserves" (LCLOR) — about $2.7 trillion, or 8% of GDP. Below that is repo-market panic, as in September 2019. In May 2024 the Fed slowed QT on Treasuries from $60bn/month to $25bn/month, and in April 2025 to $5bn/month, effectively halting the drain of liquidity. Scenario B — autumn 2026–2027.
Officially this was sold as "achieving the ample-reserves goal." Unofficially, it is a structural limit. Two independent institutions — the Treasury and the Fed — ended up tied together.
Chapter 3 · 1982 → 2026. How hedge funds learned to bet 100 times more than they have
In 1977 the Chicago Board of Trade launched futures on US Treasury bonds; in 1982 it added T-note futures and options. Futures added leverage: you could bet on a bond's rise or fall without buying it. The futures price and the cash price of the same bond almost always differ slightly — that is the "basis." The gap is tiny, but if you catch it right, you can make money.
How the basis trade appeared
The scheme is simple: buy the bond for cash, sell a futures contract on it, wait for the prices to converge, and close both positions at a profit. The strategy appeared among banks in the 1990s and was loved by pension funds and insurers. In the 2000s hedge funds joined, discovering they could borrow to fund it almost for free:
- The fund has $10 million of its own money.
- The fund borrows $990 million from a dealer bank via bilateral repo.
- It uses all $1 billion to buy a government bond and immediately re-pledges it to the dealer — with no discount.
- It gets the cash back — and repeats, or plays the futures spread.
Result: on $10 million of its own capital, the fund holds a $1 billion position. That is "100x leverage."
By 2018–2019 the basis trade had become one of the biggest "hidden buyers" of long US government bonds — $500 billion to $1 trillion of long debt flowed through it. The Fed, the SEC, and the Treasury knew. But the strategy produced "risk-free" profit, and regulators chose not to touch it.
March 2020: a dress rehearsal of disaster
During the COVID panic, investors began selling assets en masse for cash, closing basis trades among them. As demand for cash soared, repo rates spiked, and the strategy began losing money every day. Funds got margin calls — and were forced to sell bonds, which pushed prices down and triggered a cascade.
From 9 to 18 March 2020, the US Treasury market — the largest and "most liquid" in the world — effectively seized up. Spreads widened 5–10 times, and the Fed had to buy billions of dollars of paper a day to stop the panic. Without its intervention, the market could have lost $1+ trillion in a week.
2024–2026: the regulator retreats
The SEC announced mandatory central clearing back in 2023, then postponed the deadlines twice (cash market — end of 2026, repo — mid-2027). The reason nobody says aloud: if you remove the basis trade, who buys long government bonds? The Treasury issues hundreds of billions of debt every year, and hedge funds are the largest "hidden buyer" of the long end. Remove them, and the Treasury must pay far higher rates. The SEC now chooses between the risk of "hidden 100x leverage" and the risk of "nobody to sell the debt to." It chooses the former.
Chapter 4 · 1945 → 2025. How Japan became the donor of American debt
After the war, Japan found itself in a unique position: military spending — zero (the 1947 Constitution prohibits war), a disciplined and cheap workforce, generous US aid. In 25 years the country went from ruins to the world's second-largest economy.
In the early 1980s the US pressured Japan: a trade deficit of tens of billions a year, and the yen "artificially undervalued." In May 1984, under the Yen-Dollar Accord, Japan agreed to open its financial market to foreign money and let the yen strengthen. It was an ultimatum backed by the threat of sanctions.
Japanese exports became more expensive, the Bank of Japan cut rates, and money poured into stocks and real estate. Land in central Tokyo came to "cost more than all of California." By 1989 the Nikkei peaked at almost 39,000 points. It was a classic bubble — the only question was when it would burst.
In 1990 the Bank of Japan sharply raised rates (from 2.5% to 6% in a year), and the bubble burst. The Nikkei lost 60% over three years, real estate fell 70% by 2000, and banks were left with trillions in "bad" loans. The "lost decades" began: rates fell to zero by 1999 (ZIRP), and in 2001 QE was briefly introduced and then wound down.
In the 2010s Japan returned to deflation. "Abenomics" blew up the Bank of Japan's balance sheet: $1.7 trillion in 2010, $5 trillion in 2020, $5.5 trillion by 2024 — more than the country's own GDP. In 2016 it introduced negative rates (NIRP) and yield curve control (YCC), and the Bank of Japan bought more than half of all the country's government bonds. By 2023 YCC was being loosened, and in 2024 it was abolished.
This created a unique situation: the yen became the "cheapest currency to borrow." You borrow yen at 0% (or even −0.1% in 2016–2024), convert to dollars, buy Treasuries at 4–5% — the difference is pure profit. Japanese pension funds (especially GPIF) fled domestic bonds for American ones. By 2024 Japan holds more than $1.1 trillion of US government debt — its largest foreign buyer.
2024–2025: the thaw
In 2022 inflation woke up in Japan for the first time in 30 years. In March 2024 the Bank of Japan raised rates for the first time in 17 years, and again in July — to 0.25%. That was enough: on 5 August the Nikkei fell 12.4% in a single day — the largest drop since 1987 — and the dollar fell from 161 to 141 yen within a week.
By 2025 the Bank of Japan continues its normalization: rates are out of negative territory and YCC is abolished. Each such step is a blow to the carry trade. Funds close dollar positions to repay yen loans and sell Treasuries. Every $100 billion of selling is a drain of liquidity from the American financial system.
Chapter 5 · 2008 → 2026. How states want to automate the whole system
In October 2008, a month after Lehman collapsed, a person (or group) under the name Satoshi Nakamoto published "Bitcoin: A Peer-to-Peer Electronic Cash System." The idea is simple: money without a state, without a bank, without intermediaries. The key thing Bitcoin did was show that money can work without a central bank. That idea lodged itself in the minds of regulators worldwide.
In 2014 Vitalik Buterin launched Ethereum, adding "programmability" to the blockchain — smart contracts that execute under certain conditions. It opened up decentralized finance (DeFi), and by 2021 thousands of "applications" ran on Ethereum — lending without a bank, currency exchange without an exchange. Regulators panicked: they did not know whether it could be regulated.
By 2016 central banks understood: if they did not build a digital currency themselves, someone else would. A CBDC is a digital version of a national currency issued by the central bank. There is a retail variant (for people — a threat to banks) and a wholesale variant (for interbank settlement — safer). Most countries are still choosing the second.
In 2020 China launched a pilot of the digital yuan (e-CNY) — by 2024 more than $250 billion of transactions had flowed through it. The BIS Innovation Hub opened hubs worldwide, the New York Fed launched Project Cedar, and the ECB and the Bank of England are preparing digital versions of their currencies.
2023–2026: Project Agorá and RLN
In April 2024 the BIS launched Project Agorá — the largest experiment to date: seven central banks (including the Fed, the Bank of England, and the Bank of Japan) and the largest private banks are testing a single network where tokenized central-bank money, tokenized deposits, and tokenized government bonds coexist on one platform.
In 2024 the concept of the RLN (Regulated Liabilities Network) appeared: margin calls, collateral reallocation, and interbank settlement happen instantly, through smart contracts. It used to take hours or days — and it was those days of waiting in March 2020 that cost the world economy a trillion dollars.
By 2026 the first tokenized Treasuries — government bonds as digital tokens that can be used to settle instantly — appeared in the US. BlackRock launched the BUIDL fund at $500 million+, and Fidelity and Franklin Templeton followed with their own.
Those were the five stories: how debt became collateral, how the central bank became a hostage, how hedge funds built hidden 100x leverage, how Japan entered the American orbit, and how states want to automate the system. In each — concrete people, dates, and mistakes. No "systemic risks" — only decisions someone made.
In Part 2 all five threads weave into one: how they work together right now, in 2026 — and why the dollar and the yen have more in common today than it seems.