Reduced Dollar Dependence and External Balance Sustainability across Time Horizons: Evidence from Five Emerging Economies (1999–2025)

[Purpose] This study attempts to investigate whether de-dollarization, defined as a lessening of reliance on the U.S. dollar for settlement of international trade, improves the sustainability of trade balance (TBS) in emerging economies and if the impact varies by trade balance regime, and by time horizon. It fills a void that linear and mean-based studies leave when assuming a constant effect over the course of time. [Design/methodology/approach] The study implements the maximality of information from the panel of five emerging economies (MEX, IDN, MAS, THA, and TUR) from 1999 to 2025, using wavelet decomposition methodology in maximal overlap as well as quantile-on-quantile regression (WQQR) methodology to relate a standardized de-dollarization index (DDX) to TBS across the entire conditional distribution of both indexes and across short-, medium- and long-run frequencies. [Findings] There is very little aggregate correlation between de-dollarization and sustainability (≈0.02) and much of the variation. The relationship is positive and statistically significant in the lower-to-middle quantiles of the trade balance, and becomes more negative and stronger at the upper quantile of the trade balance; it is mostly negative and not statistically significant over medium horizons, and is not statistically significant over short horizons. The slopes of these patterns are fairly stable under an alternative wavelet basis and under a current-account-based outcome, although when the outcome is standardized within-country, the slopes become negative, suggesting that the positive long-run pattern is mostly a cross-country (level) regularity. [Implications] The results suggest that de-dollarization is a structural lever to be pulled in the long run and not a tool of stabilization, and that it would be most effective when external balance is fragile, consistent with the dominant-currency paradigm. The evidence highlights an effect that is discernible mostly between countries, and this suggests that there should be a gradual move to a diversified mix of reserves and settlements, with a particular focus on the local context. [Originality/value] The study offers one of the first horizon- and regime-explicit assessments of the de-dollarization–sustainability nexus for emerging markets, extending the dominant-currency paradigm from the price of the currency to the currency of denomination and demonstrating that a combined wavelet quantile-on-quantile design recovers structure that mean-based models miss.