Currency choices and the role of the U.S. dollar in international services trade

Joana Garcia and João Amador

Working Papers from Banco de Portugal, Economics and Research Department

Abstract: We analyze how firms choose the currency in which they price their transactions in services trade and explore to what extent the U.S. dollar has a dominant role in those transactions, as documented by earlier literature for goods trade. Using a new granular dataset detailing the currency used by Portuguese firms in extra and intra-EU trade, we show that currency choices in services trade are active firm-level decisions. Services exporters that are larger and that rely more on inputs priced in foreign currencies are less likely to use the domestic currency in their services exports. Moreover, we document that the U.S. dollar has a dominant role as a vehicle currency in services trade, but it is less prevalent than in goods trade. Our results are consistent with this difference arising from a lower openness of services markets and from a stronger reliance of services in domestic inputs.

JEL-codes: F14 F31 F41 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-ifn, nep-int, nep-mon, nep-opm and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:ptu:wpaper:w202316

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