Financial channel implications of a weaker dollar for emerging market

Key takeaways 

• 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.

The views expressed in this publication are those of the authors and not necessarily those of the BIS.