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Discussion Paper Details

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

Author(s): Meredith A Crowley, Lu Han and Minkyu Son

Publication Date: November 2020

Keyword(s): Exchange rate, firm-level trade, invoicing currency and Vehicle currency

Programme Area(s): International Macroeconomics and Finance and International Trade and Regional Economics

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.

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Bibliographic Reference

Crowley, M, Han, L and Son, M. 2020. 'Dominant currency dynamics: Evidence on dollar-invoicing from UK exporters'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15493