Is Dollar Decline Good for the Developing World?
In many ways, the green paper that Americans use for transactions is emblematic of the society it serves. As a result of consistent domestic political uncertainty and foreign military interventions, its decline has been lamented by many. While it has remained the global powerhouse, its future looks cloudy: in the first half of 2025, it fell by 10%, its largest drop in half a century. Although much has been said about the decline of the dollar in relation to the United States domestically, a less-discussed aspect has been its effect on the rest of the world.
So what would be the effect of the world moving away from the dollar as the world's dominant currency?
First, it would open the door to other currencies replacing it. The dollar is not just confined to domestic use; it is the lingua franca of global finance, used for everything from electronics trade to oil purchases. So what could come next for the world in the wake of the dollar's decline?
On one hand, the decline of the dollar offers a window of sovereignty away from the engine of American economic dominance. Less-developed nations are often bound to decisions made by the Federal Reserve regarding the supply of the U.S. dollar. In an idealized future, these nations could instead rely on local currencies, avoiding the monopolization of international trade. Take BRICS, a coalition of populous, developing nations that has long discussed the possibility of creating a euro-like common currency. Although these plans have never gained real traction, the coalition has been developing a shared blockchain-based financial system that aims to provide greater financial independence from the dollar.
Additionally, the decline of the dollar would reduce the American soft power associated with its dominance. Take sanctions, the long-standing hallmark of economic coercion: since April 2024, they have been used in roughly 15,000 instances to restrict other nations' access to the dollar. These measures do not just target governments and institutions traditionally viewed as adversaries of the United States; they have also affected countries that are close U.S. allies, including NATO members such as Türkiye and Poland. For nations moving away from the U.S. dollar, this could be a welcome change, providing greater political autonomy. With the United States unable to rely as heavily on its primary tool of economic coercion, it may instead be pushed toward offering more cooperative international economic policies.
Next, the weakening of the dollar could also ease the burden on indebted nations. Although the United States is not a major creditor relative to the size of its economy, many countries borrow in dollars or are required to repay loans in dollars. When the dollar depreciates relative to another country's currency, it becomes easier for that country to repay its debt. For heavily indebted nations, this frees up capital that can be reinvested in areas such as infrastructure and healthcare.
Although the decline of the dollar has long been feared by many American economists, it seems clear that the international community would be less opposed to the idea. The dollar is unlikely ever to lose its international relevance entirely; however, for the time being, many developing countries may welcome its gradual decline.
The U.S. dollar has seen a marked decrease from its consistent position as the global currency. Its future looks cloudy: in the first half of 2025, it fell by 10%, its largest drop in half a century. Much of the discussion around the dollar has focused on its effect on the U.S. and the developed world, yet little has been said about its negative impact on developing countries.
First, the weakening of the dollar affects developing countries during the transition away from dollar supremacy. According to The Economist in April, many developing nations would struggle to handle the institutionalized use of "dollar obligations" (paying off debt in dollars) while at the same time financing trade in separate currencies. This essentially puts them in a form of financial limbo. Many central banks are used to doing the majority of their dealings in one centralized currency, so shifting over while maintaining economic stability would be nearly impossible for them.
Concerns have been raised about what the fragmentation of a competitive currency market would mean for the second world. According to Brian Peters of Perspective on Risk, the vast majority of China's Belt and Road Initiative investment has so far been in dollars. The decline of the U.S. dollar hurts Chinese lending, since it makes it easier for less developed nations to pay off their loans. China now plans to reverse this policy: according to Reuters in January, China has begun to lend more in yuan. This makes it much harder for nations to switch lending practices, since Chinese loans would likely become conditioned on political favors at an even higher rate than they are now.
Additionally, with the yuan as the frontrunner to replace the dollar, many nations turning toward China would feel the change in economic policy. This is important because it allows China to set up its own bloc as a basis for power. This is already taking shape to a smaller degree in the developing world. China exerts power through loans, as with Sri Lanka's Hambantota Port, which was handed over as a result of a Chinese debt trap. For many nations, the need to find a reliable, effective currency would outweigh many of the concerns over predatory lending.
Investment isn't the only thing affected, however. When the dollar depreciates, U.S. exports become cheaper, so American goods are easier to buy. Unfortunately, this collapses business for countries that are paid in dollars. Many nations that deal in commodities, like the members of OPEC, would see their exports slashed. As a result, many of these nations would be forced to send their goods to other peer markets, like China or Europe. They would be selling into unfamiliar markets, and likely at a discount. Additionally, when the dollar declines, the prices of commodities like wheat and oil surge to compensate for the losses from depreciation. For example, after the dot-com bubble burst, oil prices rose to counteract depreciation. For nations that import oil, this makes it harder to bring in fuel and gasoline.
Although many economists are quick to label depreciation as a potential lifeline for developing nations, a look at the finer print reveals a much more nuanced picture.