Dominant Currencies: How Firms Choose Currency Invoicing and Why it Matters

Mary Amiti, Oleg Itskhoki and Jozef Konings

The Quarterly Journal of Economics, 2022, vol. 137, issue 3, 1435-1493

Abstract: We analyze how firms choose the currency of invoicing and the implications of this choice for exchange rate pass-through into export prices and quantities. Using a new data set for Belgian firms, we find currency invoicing to be an active firm-level decision, shaped by the firm’s size, exposure to imported inputs, and the currency choices of its competitors. Our results show that a firm’s currency choice, in turn, has a direct causal effect on the exchange rate pass-through into prices and quantities. Moreover, the differential price response of similar firms that invoice in different currencies is large, persists beyond a one-year horizon, and gradually wanes in the long run. This results in allocative expenditure-switching effects on export quantities, which build up over time, suggesting a role for quantity adjustment frictions in addition to price stickiness. Our findings shed light on the mechanisms that make or break a dominant currency and the consequences it has for the international transmission of shocks.

Date: 2022
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Related works:
Working Paper: Dominant Currencies: How firms choose currency invoicing and why it matters (2020)
Working Paper: Dominant Currencies: How Firms Choose Currency Invoicing and Why it Matters (2020)
Working Paper: Dominant currencies How firms choose currency invoicing and why it matters (2018)
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