The true proximate cause of the recent sell-off, however, is to be found in Japan. Last week the Bank of Japan raised interest rates from 0% to 0.25%, aiming to stop the yen’s continuing fall against the dollar. Really, though, this represents broader chaos within the global dollar system itself. The underlying driver of this chaos is the energy price inflation associated with the Ukraine war and the accompanying sanctions, which have forced most Western central banks to raise interest rates.

Due to serious demographic problems and stagnant wages, Japan has a naturally deflationary economy. This has meant that Tokyo has not been able to raise interest rates in lockstep with other countries, and so the yen has sold off. But as the market chaos spreads, it is starting to look as if Japan was simply a canary in the coal mine. Stock markets in countries which lie within the dollar-based system have been vastly inflated for years — mostly because of monetary experiments by central banks such as quantitative easing (QE) — and now the whole set-up appears to be unravelling.

The question is whether the dollar-based global system can survive this turmoil. When markets crashed in 2008 the system took a beating, with foreign holders of American assets shocked to find out that their purchases were not worth what they paid for them. At the time, however, the rest of the American-led system seemed stable and so the dollar’s hegemony chugged on. Now, with the enormous geopolitical shifts we are seeing across the world, it is unclear whether the dollar-based system can survive another financial markets crash.