Financial channel implications of a weaker dollar for emerging market economies

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 do not necessarily reflect the views of the BIS or its member central banks.