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Does Leaving the Eurozone Mean Leaving the Euro?

Frank Hefner and Mark Witte ()
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Frank Hefner: College of Charleston

International Advances in Economic Research, 2016, vol. 22, issue 3, No 3, 279-294

Abstract: Abstract Events in the Eurozone have raised the possibility that a Eurozone member departs the currency union. We devise a simulation to examine whether trading firms in the departed country will continue to invoice their product in the Euro or elect another currency denomination strategy. Because trading firms have flexibility in choosing their invoicing currency, they make an excellent case for studying the currency usage patterns of other economic actors that may emerge after Eurozone departure. Results suggest that greater price discrimination leads to more use of the buyer’s currency while firms that set only one price will tend to denominate that price in the U.S. dollar. Low exchange rate volatility between the exiting country’s new currency and the Euro leads to more Euro usage.

Keywords: Currency invoicing; European Union; Currency union; Exchange rate volatility; Price discrimination (search for similar items in EconPapers)
JEL-codes: F14 F30 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1007/s11294-016-9589-5

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Handle: RePEc:kap:iaecre:v:22:y:2016:i:3:d:10.1007_s11294-016-9589-5