Financial channel implications of a weaker dollar for emerging market economies

Mikael Juselius, Philip Wooldridge and Dora Xia

No 114, BIS Bulletins from Bank for International Settlements

Abstract: The depreciation of the US dollar in 2025 has occurred against the backdrop of continued resilience of trade and economic activity in emerging market economies (EMEs). A depreciating dollar affects both borrowers' and foreign investors' balance sheets and tends to loosen financial conditions in EMEs through the risk-taking channel of exchange rates. As EMEs have increasingly become net creditors to the rest of the world, the currency hedging behaviour of EME investors has played a greater role in currency market dynamics in 2025.

Pages: 8 pages
Date: 2025-10-13
New Economics Papers: this item is included in nep-ifn and nep-opm
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