The Imminent Fall of the Eurodollar System | Alex Krainer

During a meeting with technology, crypto, and finance leaders held at the White House yesterday, President Trump brought up the GENIUS Act (Guiding and Establishing National Innovation for US Stablecoins Act) again.

» I know, I know… The idea that the Trump administration is doing anything "legitimate"

may defy imagination by now, but the current arrangement is anything but legitimate. «

 

Trump framed the Act as part of his administration's broader crypto and digital-asset agenda (ending what he called the "war on crypto," launching "Project Crypto," establishing a US Strategic Bitcoin Reserve, and creating a Digital Asset Stockpile):

"One year ago this summer, I signed landmark legislation known as the GENIUS Act. … paving the way for widespread adoption of dollar-backed stablecoins, and that's worked out very well."

Indeed, the Act was already passed last summer, and Trump signed it into law on July 18, 2025, so why all the commotion about it now, more than a year later?

Could be earth-shattering…

Treasury Secretary Scott Bessent tweeted that the GENIUS Act established a landmark framework and clear rules of the road for payment stablecoins, and that the Treasury is moving quickly to implement that framework, asking for "input from stakeholders" in order to "cement the role of the US dollar as the world's reserve currency, and keep America the crypto capital of the world."

The US, via regulated dollar stablecoins and Treasury authority under the GENIUS Act, aims to shut down the unregulated eurodollar market, reclaim control of the dollar's global role, and defund the "rules-based order" and shadow networks, triggering market tremors, surging demand for legitimate dollars, and pressure on non-favored countries such as Britain, the EU, and Canada.

The Act establishes new US federal laws creating a comprehensive regulatory framework for payment stablecoins redeemable for a fixed monetary value (typically $1) and intended to maintain a stable value relative to the "legal tender" currency. It also restricts the issuance of stablecoins to "permitted payment stablecoin issuers," and this is where the GENIUS Act gets extremely interesting.

What GENIUS Is All About…

Speaking at the SALT Conference in Jackson Hole, Wyoming, the former Wall Street executive and prominent advocate for monetary reform Caitlin Long pointed out that the GENIUS Act enables the Treasury Department to define "what is allowed to be a so-called euro-dollar, euro-yen, euro-euro. Or yuan, right?" She continued:

"… the term ‘euro' doesn't mean European. It means a dollar issued offshore outside of the United States … These are tokenized fiat currencies issued outside of their home country, and the US Treasury is taking charge of the recognition of the validity of these. That is massive.

The fact that there are institutions outside of the United States that can issue US currency should be regarded as an illegal aberration. Effectively, they're counterfeiting US dollars, but in spite of that, for some reason, it has been taken as normal for decades now. That's in spite of the fact that counterfeiting US dollars abroad effectively robs the purchasing power of American taxpayers to fund any manner of nefarious activities."

Most likely, that's why this system was allowed to grow to such massive proportions. Caitlin Long again:

"… If you're a student of the financial markets, you know that the eurodollar market is as large as the domestic financial market. That's the offshore dollar market. When the US Treasury is taking control of what is recognized as valid, that is taken from the Fed. … The Treasury is taking power back over the US dollar, over the eurodollar markets, and, frankly, over the US role in the financial system globally from the Fed."

Long made these comments after discussing the GENIUS Act with "someone who just walked out" of a Treasury Department meeting, and if she is right (I believe she certainly is), the implications could be truly earth-shattering. To begin with, disenfranchising the Fed and taking control over the currency from it is the stuff of civil wars.

"To put that into context, when we were talking earlier about how antiquated the traditional system is and that the Fed's systems are themselves behind… If you've been watching, all of the other agencies have issued rules [in accordance with the GENIUS Act]. One glaring exception: the Fed has not issued its rules yet, and according to the GENIUS Act, all of the agencies' rules were supposed to be final a couple of weeks ago. The Fed hasn't even issued theirs yet, so there's this dynamic going on between the Treasury Department and the Fed."

"The dynamic" going on between the Treasury Department and the Fed is a political collision course in which the Treasury is trying to wrest control over the monetary system from the unelected private bankers and return it to the democratically elected government and its legitimate institutions.

I know, I know… The idea that the Trump administration is doing anything "legitimate" may defy imagination by now, but the current arrangement is anything but legitimate. It is also patently unconstitutional: the Constitution of the US explicitly authorizes Congress with the power "To coin Money, regulate the Value thereof…" (Article I, Section 8, Clause 5). The Constitution also gives Congress the power "to provide for the punishment of counterfeiting the Securities and current Coin of the United States."

 

Contrary to its name, the eurodollar has nothing to do with the European currency. The eurodollar market is an offshore fractional-reserve banking system in which dollar deposits held at banks outside the US are multiplied through interbank lending and book-entry creation, largely free of Fed reserve requirements, to form a vast parallel dollar funding market that ultimately settles via US payment systems.

Eurodollar, Fed, and the Shadow Governments

The counterfeit US dollars circulating abroad are the glue that holds the global "rules-based" order together: they enable the funding needed to bribe foreign officials, pay for and arm the sundry jihadi terror groups and separatist militias. The colossal network of NGOs, charitable organizations, and other groups and activities of shadow governments around the world can't be fully funded through legitimate legal means. These activities often require illegal activities and trillions in embezzled funds.

For example, according to recent reports, billions of dollars have been offered to Iranian officials to sell out and turn Iran over to a government more friendly to the Trump team. In the past, we know that hundreds of millions in US bank notes are routinely smuggled from the Federal Reserve Bank of New York, past the US Comptroller of the Currency, to provide funding for coups, assassinations, regime-change operations, and similar "special assignments" by the shadow government.

That is why it should be essential for the US government to regain control of the dollars circulating abroad (or to render those dollars illegitimate and worthless), defunding the "rules-based global order" and reasserting US economic and financial sovereignty. While it would be too optimistic to expect that the Trump administration has pushed the GENIUS Act to achieve any such elevated goals, we should hope that it might leave behind the means needed for American democracy to reassert its economic and financial sovereignty and turn its currency into a tool to recover its prosperity and economic edge.

In the Meantime, Tremors

Given that half or more of all US dollars in circulation around the world are outside the United States, the administration's intended actions (there'll be ambushes; we'll find out) will cause major tremors in world markets, driving demand for "legitimate" dollars and rendering the "illegitimate" ones worthless. This will enable Trump and his team to exert pressure on governments around the world and dictate the terms at which their dollar balances may be converted into new stablecoins needed for trade settlement and reserve requirements.

I expect that Great Britain, the EU, and Canada won't be among the "most favored nations" in the near future, which will further worsen their fiscal positions, make it difficult for them to access global markets and procure commodities like oil, natural gas, wheat, and others. This will lead to shortages and exacerbate inflationary pressures at home.

Reference:

Alex Krainer (August 20, 2026) - The imminent fall of the Eurodollar system.

See also:
Alex Krainer (August 17, 2026) - Japan's Yen Collapse Threatens to Drag the US Down With It.
Martin Armstrong (July 17, 2025) - Trump's GENIUS Act Sets the Stage for US CBDC.

Japan's Yen Collapse Threatens to Drag the US Down With It | Alex Krainer

In March 2022, while the yen was trading around 115 to the US dollar, I wrote that the "yen will burn to a crisp over the coming years." Four+ years (and numerous interventions) later, it takes 159.2 yen to buy one dollar, the weakest it’s been in 40 years, which is amplifying Japan’s rampant inflationary pressures. If the oil prices continue to rise, which seems likely, and if the yen continues to fall, which also seems likely, Japan could find itself in a disastrous double jeopardy.
 

 

» The predictable disintegration of Japan's fiscal and economic position is now all but inevitable. Japanese Government Bonds will collapse. The unraveling could resemble what Germany had experienced 100 years ago. «

Namely, Japan has to import about 3 million barrels of crude oil per day which, at current prices, is well in excess of $250 million/day, settled in US dollars. The higher the oil price goes, the greater Japan's demand for US dollars, and the greater the downward pressure on the yen. The lower the yen, and the higher the prices of oil and other imported goods, the more inflation Japan imports via its US dollar oil purchases.

US Sovereign Liquidity Strain: Facing weak demand that pushed 30-year yields to a 16-year high of 5.33%, the US Treasury doubled its liquidity buybacks of 10-, 20-, and 30-year bonds from $2 billion to over $4 billion per operation. By issuing short-term debt to repurchase long-term debt, the Treasury temporarily suppressed yields by 9–10 basis points.

Aggressive Japanese Capital Flight: Japan, the largest foreign holder of US debt, liquidated $26.4 billion in Treasuries in June alone (bringing holdings to $1.117 trillion) to raise funds to defend the falling yen.

Failing Currency Interventions: Despite joint US-Japan interventions pulling the yen back from 40-year lows near 164, the currency quickly erased over half those gains to trade above 159, pressuring the Bank of Japan to prepare further sales.

Systemic Risk: The alignment of Japan selling US debt to protect its currency alongside the US acting as the buyer of last resort for its own bonds indicates deep structural friction in global debt markets, deferring broader volatility across equities, real estate, and fixed income. 

Raising rates is not an option

Ordinarily, when they wish to strengthen their currency, central bankers raise interest rates. That would make Japanese financial assets more attractive to global investors, which would boost the demand for and purchases of yen. But the Bank of Japan (BOJ) can hardly afford to do that, given that it would bankrupt the Japanese government, which is leading the developed world in terms of debt-to-GDP, which currently stands at around 240%.

» As inflation accelerates, the Nikkei could continue to soar. However, the nominal gains in stocks will be more than offset by their losses in yen, still leaving investors with close to total losses in real terms. «

 Nikkei (weekly candles), July 2022 to August 2026.

Raising interest rates would also crash Japan’s financial markets and with it, Japan’s pension funds. When the BOJ raised the interest rates by only 0.25% on 31 July 2024, the Nikkei collapsed by -12.4%—its worst one-day crash since the Kobe earthquake in 1987. Currently, Japan’s debt to GDP stands at around 240%.

Sustainable market manipulation?

The answer, probably, is yes, but not this week. Given that raising interest rates is unpalatable, Japan had the option of selling its $1.1+ hoard of US Treasuries and using the proceeds to buy and prop up the yen. In fact, Japan’s Finance Minister Satsuki Katayama was anxious enough about her government's fiscal position that on July 10 she explicitly encouraged Japanese households and pension funds "to increase their investments in Japanese financial assets."

But selling US investments to buy Japanese assets would put further pressure on US interest rates, putting a squeeze on the US Government which is already in a massive fiscal bind. In fact, the US Government can be so sensitive about foreign governments selling their Treasury debt that they can regard it as an act of war. Accordingly, Ms. Katayama quickly backpedaled from her cunning plan. Instead, the US and Japan together coordinated an intervention to support the yen and relieve Japan’s inflationary pressure.
 

» The reason why even real assets turn worthless is that inflation 
indiscriminately annihilates the purchasing power in an economy. « 
The Economics of Inflation. Basis for all curves: January 1922 = 100. 

In late July, the US coordinated market operations with Japan to support the yen, which have been somewhat successful: they knocked the yen back up from its 40-year low of 164 yen to the dollar to below 156. Since then, however, the yen fell back to just under 160 yen/USD, where it is trading today.

Even when governments do it, currency rate manipulations ultimately fail: they buy a temporary respite from the accelerating collapse, but they cannot reverse the decline as they leave the structural causes of the financial imbalances intact. In the end, I believe that the yen will indeed burn to a crisp (as will the euro and the British pound) and that Japan will ultimately drag the United States with it.

We'll know it when it happens

Unfortunately, predicting the timing of all these events is out of the question. Note, my original article about Japan being the harbinger of bad things to come is over 16 years old, and its predictions are yet to unfold in full. US/Japanese joint yen rescue operation may not be over yet. Further efforts to boost the yen could be successful, especially if they trigger large-scale short covering in the markets.

Namely, global investors and traders have accumulated the largest short position on record against the yen. Panicked short-covering could give another boost to the yen in the near term, but in the end, the predictable disintegration of Japan's fiscal and economic position is now all but inevitable.

What happens next

Reiterating my earlier prediction with relation to this crisis, we can make three predictions about Japan’s economy:

► We'll see a period of stagflation (inflation+recession), the inflation part could ultimately morph into hyperinflation;
► Interest rates will continue to rise, and the price of Japanese Government Bonds will collapse. I believe that the unraveling could resemble what Germany had experienced 100 years ago;

► The Nikkei could continue to rally (for now)—as currency and debt turn worthless, equities tend to go vertical as we saw in many cases through history, including Venezuela, Zimbabwe, Argentina, Israel, and the Weimar Republic too.

Thus, as Japan's inflation accelerates, the Nikkei could continue to soar. However, the nominal gains in stocks will be more than offset by their losses in yen, still leaving investors with close to total losses in real terms. The reason why even real assets turn worthless is that inflation indiscriminately annihilates the purchasing power in an economy. When everyone’s purchasing power converges on zero, we really get the great reset: owning nothing minus being happy.

 

Quoted from:

Alex Krainer (August 17, 2026) - Japan financial tsunami barreling for the US.