Crowley, M. A., Han, L. and Son, M.
Dominant Currency Dynamics: Evidence on Dollar-invoicing from UK Exporters
CWPE20113
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 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
JEL Codes: F14 F31 F41
Author links: Meredith Crowley
PDF: https://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe20113.pdf 
Open Access Link: https://doi.org/10.17863/CAM.62848
