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Dominant Currency Dynamics: Evidence on Dollar-Invoicing from UK Exporters

Meredith Crowley, Lu Han and Minkyu Son

No 202104, Working Papers from University of Liverpool, Department of Economics

Abstract: How do the choices of individual firms contribute to the dominance of a currency in global trade? Using export transactions data from the UK over 2010-2016, we document strong evidence of two mechanisms that promote theuse of a dominant currency: (1) prior experience: the probability that a firm invoices its exports to a new market in a dominant currency is increasing in the number of years the firm has used the dominant currency in its existing markets; (2) strategic complementarity: a firm is more likely to invoice its exports in the currency chosen by the majority of its competitors in a foreign destination market in order to stabilize its residual demand in that market. We show that the introduction of a managerial fixed cost of currency management into a model of invoicing currency choice yields dynamic paths of currency choice that match our empirical findings.

Keywords: Exchange rate; invoicing currency; firm-level trade; vehicle currency (search for similar items in EconPapers)
JEL-codes: F14 F31 F41 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2021-01
New Economics Papers: this item is included in nep-int, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://www.liverpool.ac.uk/media/livacuk/schoolof ... rom,UK,Exporters.pdf First version, 2021 (application/pdf)

Related works:
Working Paper: Dominant Currency Dynamics: Evidence on Dollar-invoicing from UK Exporters (2020) Downloads
Working Paper: Dominant currency dynamics: Evidence on dollar-invoicing from UK exporters (2020) Downloads
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