 Oil market structure, network effects and the choice of currency for oil invoicingElitza Mileva () and Nikolaus A Siegfried Energy Policy, 2012, vol. 44, issue C, 385-394 Abstract: Crude oil is a homogeneous good traded on specialised exchanges and quoted and invoiced predominantly in US dollars. Despite the strong case for the use of the US dollar as a vehicle currency in the oil trade, we provide an alternative view. We develop a simple network effects model to identify the conditions under which either a complete switch in the oil invoicing currency or parallel invoicing in different currencies is possible and economically sensible. We calibrate the model using low actual values for the transaction costs of using euro and/or US dollars, as well as a proxy for information costs, which decline with the increase in the use of the new currency. The results show that there will be a switch to parallel invoicing in both currencies when two conditions are met: first, oil exporters expect that a certain minimum number of other oil exporters will also start using the new currency; and second, the information costs associated with quoting oil contracts in two currencies are low. Keywords: Trade invoicing; Network effects; Oil trade (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:44:y:2012:i:c:p:385-394 DOI: 10.1016/j.enpol.2012.02.002 Access Statistics for this article Energy Policy is currently edited by N. France More articles in Energy Policy from Elsevier |
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