Dominant currency dynamics: Evidence on dollar-invoicing from UK exporters

Meredith Crowley, Lu Han and Minkyu Son

No 15493, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 the use 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)
Date: 2020-11
New Economics Papers: this item is included in nep-int, nep-mon and nep-opm
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Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Dominant Currency Dynamics: Evidence on Dollar-Invoicing from UK Exporters (2021)
Working Paper: Dominant Currency Dynamics: Evidence on Dollar-invoicing from UK Exporters (2020)
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