Is it permissible for the lender to convert the loan amount denominated in dollars to the local currency for fear of a decrease in the dollar's value, and is it permissible for him to convert it to dollars if its value increases?

The debt must be repaid in the currency in which it was borrowed. It is permissible to agree to repay it in another currency, provided it is equivalent to its value at the exchange rate on the day of repayment, and contingent upon immediate possession, based on the hadith (definition) of Ibn Umar. It is recommended for the borrower to repay handsomely. Your friend is obliged to repay the debt in the same currency or its equivalent on the day of repayment, and any increase beyond that is permissible if given willingly.