IDEAS home Printed from https://ideas.repec.org/p/bis/bisblt/114.html
   My bibliography  Save this paper

Financial channel implications of a weaker dollar for emerging market economies

Author

Listed:
  • Mikael Juselius
  • Philip Wooldridge
  • Dora Xia

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.

Suggested Citation

  • Mikael Juselius & Philip Wooldridge & Dora Xia, 2025. "Financial channel implications of a weaker dollar for emerging market economies," BIS Bulletins 114, Bank for International Settlements.
    • Handle: RePEc:bis:bisblt:114
    as

    Download full text from publisher

    File URL: https://www.bis.org/publ/bisbull114.pdf
    File Function: Full PDF document
    Download Restriction: no
    File URL: https://www.bis.org/publ/bisbull114.htm
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Philip R. Lane & Gian Maria Milesi-Ferretti, 2018. "The External Wealth of Nations Revisited: International Financial Integration in the Aftermath of the Global Financial Crisis," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 66(1), pages 189-222, March.
    2. Valentina Bruno & Hyun Song, 2023. "Dollar and Exports," The Review of Financial Studies, Society for Financial Studies, vol. 36(8), pages 2963-2996.
    3. Bagsic, Cristeta & Bayangos, Veronica & Moreno, Ramon & Parcon-Santos, Hazel, 2025. "The impact of currency depreciation and foreign exchange positions on bank lending: Evidence from an emerging market," Emerging Markets Review, Elsevier, vol. 66(C).
    4. Hyun Song Shin & Philip Wooldridge & Dora Xia, 2025. "US dollar's slide in April 2025: the role of FX hedging," BIS Bulletins 105, Bank for International Settlements.
    5. Valentina Bruno & Ilhyock Shim & Hyun Song Shin, 2022. "Dollar beta and stock returns," Oxford Open Economics, Oxford University Press, vol. 1, pages 1-10.
    6. Patrick McGuire & Ilhyock Shim & Hyun Song Shin & Vladyslav Sushko, 2021. "Outward portfolio investment and dollar funding in emerging Asia," BIS Quarterly Review, Bank for International Settlements, December.
    7. Valentina Bruno & Hyun Song Shin, 2015. "Cross-Border Banking and Global Liquidity," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(2), pages 535-564.
    8. Boris Hofmann & Ilhyock Shim & Hyun Song Shin, 2022. "Risk capacity, portfolio choice and exchange rates," BIS Working Papers 1031, Bank for International Settlements.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jieun Lee, 2023. "Dollar and government bond liquidity: evidence from Korea," BIS Working Papers 1145, Bank for International Settlements.
    2. Lee, Jieun, 2024. "Dollar and government bond liquidity: Evidence from Korea," Journal of International Economics, Elsevier, vol. 152(C).
    3. Ryan Niladri Banerjee & Boris Hofmann & Aaron Mehrotra, 2020. "Corporate investment and the exchange rate: The financial channel," BIS Working Papers 839, Bank for International Settlements.
    4. Lovchikova, Marina & Matschke, Johannes, 2024. "Capital controls and the global financial cycle," European Economic Review, Elsevier, vol. 163(C).
    5. Carvalho, Daniel, 2020. "Leverage and valuation effects: How global liquidity shapes sectoral balance sheets," International Review of Financial Analysis, Elsevier, vol. 72(C).
    6. Valentina Bruno & Ilhyock Shim & Hyun Song Shin, 2022. "Dollar beta and stock returns," Oxford Open Economics, Oxford University Press, vol. 1, pages 1-10.
    7. Goldberg, Linda S. & Krogstrup, Signe, 2023. "International capital flow pressures and global factors," Journal of International Economics, Elsevier, vol. 146(C).
    8. Kumhof, Michael & Sokol, Andrej & Rungcharoenkitkul, Phurichai, 2020. "How Does International Capital Flow?," CEPR Discussion Papers 15526, C.E.P.R. Discussion Papers.
    9. Torsten Ehlers & Mathias Hoffmann & Alexander Raabe, 2020. "Non-US global banks and dollar (co-)dependence: how housing markets became internationally synchronized," IHEID Working Papers 18-2020, Economics Section, The Graduate Institute of International Studies.
    10. Egemen Eren & Philip Wooldridge, 2022. "The role of non-bank financial institutions in cross-border spillovers," BIS Papers, Bank for International Settlements, number 129, November.
    11. repec:diw:diwwpp:dp2057 is not listed on IDEAS
    12. Avdjiev, Stefan & Binder, Stephan & Sousa, Ricardo, 2021. "External debt composition and domestic credit cycles," Journal of International Money and Finance, Elsevier, vol. 115(C).
    13. Fernando Eguren-Martin & Andrej Sokol, 2022. "Attention to the Tail(s): Global Financial Conditions and Exchange Rate Risks," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 70(3), pages 487-519, September.
    14. Julian Caballero & Alexis Maurin & Philip Wooldridge & Dora Xia, 2022. "The internationalisation of EME currency trading," BIS Quarterly Review, Bank for International Settlements, December.
    15. Miguel Sarmiento, 2022. "Sudden Yield Reversals and Financial Intermediation in Emerging Markets," Borradores de Economia 1210, Banco de la Republica de Colombia.
    16. Georgiadis, Georgios & Müller, Gernot J. & Schumann, Ben, 2024. "Global risk and the dollar," Journal of Monetary Economics, Elsevier, vol. 144(C).
    17. Ryan Banerjee & Boris Hofmann & Aaron Mehrotra, 2022. "Corporate investment and the exchange rate: The financial channel," International Finance, Wiley Blackwell, vol. 25(3), pages 296-312, December.
    18. Ibhagui, Oyakhilome & Olarewaju, Favour, 2020. "Broad Dollar Shocks and Economic Activity in Trade-Heavy Countries: The Role of Government Size," MPRA Paper 100944, University Library of Munich, Germany.
    19. repec:zbw:bofitp:2020_006 is not listed on IDEAS
    20. Bruno Bonizzi & Annina Kaltenbrunner, 2024. "International financial subordination in the age of asset manager capitalism," Environment and Planning A, , vol. 56(2), pages 603-626, March.
    21. Anaya Longaric, Pablo, 2022. "Foreign currency exposure and the financial channel of exchange rates," Working Paper Series 2739, European Central Bank.
    22. Georgiadis, Georgios & Hildebrand, Sebastian & Ricci, Martino & Schumann, Ben & van Roye, Björn, 2021. "ECB-Global 2.0: a global macroeconomic model with dominant-currency pricing, tariffs and trade diversion," Working Paper Series 2530, European Central Bank.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bis:bisblt:114. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Martin Fessler (email available below). General contact details of provider: https://edirc.repec.org/data/bisssch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.