What are the primary challenges developing economies face due to dollar dependence?

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Dollar dependence in the global financial system creates unequal conditions that can disadvantage developing economies, particularly the Global South

Prime Minister Anwar Ibrahim said the global financial system is heavily dependent on the US dollar, especially in the Global South, and that this dollar dependence tends to favour large multinational corporations over small business owners. He also pointed to a system that does not serve all segments equally, often leaving behind those with the least resources and opportunities. In addition to that inequality, general economic practice around US-dollar dominance means developing economies can face financial instability when shocks move across borders, currency and exchange-rate risks, and more limited room to manage monetary conditions.
Dollar dominance can transmit global shocks across borders
Anwar said the interconnected nature of the global economy means “shocks in one part of the world can quickly spread across borders and affect millions elsewhere.” For developing economies, this matters because when financial activity is centred on the US dollar, external disturbances can travel through trade finance, payments, and capital flows. The result is that local economic conditions can be hit even when the initial trigger is outside the country.
Currency mismatch and exchange-rate risk can be higher
Even where bilateral trade uses local currencies, the US dollar can still dominate financial transactions, as Anwar noted with China-Malaysia trade using the yuan and ringgit while the US dollar remains dominant in financial transactions. In practice, this can create currency mismatch when revenues are earned in one currency but debts, pricing, or key financial obligations are effectively tied to the US dollar. That situation can increase exposure to exchange-rate swings for firms and households with limited hedging options.
Policy space can be constrained by reliance on dollar-linked finance
Anwar’s remarks highlighted that the system does not serve all segments equally, leaving behind those with fewer resources and opportunities. When a country’s financial system and cross-border transactions are closely linked to US-dollar pricing and funding, monetary and financial conditions abroad can spill into domestic outcomes. This can reduce how flexibly developing economies manage interest rates and liquidity during periods of stress.
Access to capital can be unequal between large firms and smaller businesses
Anwar directly said dollar dependence tends to favour large multinational corporations over small business owners in the Global South. That pattern aligns with how dollar-centric finance often concentrates capabilities such as scale, credit access, and risk management among larger players. As a result, smaller businesses can face relatively tougher conditions to obtain funding or participate fully in cross-border financial channels.

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What are the primary challenges developing economies face due to dollar dependence?

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