Meredith Crowley, University of Cambridge. "Dominant Currency Dynamics: Evidence on dollar-invoicing from UK exporters"
ESOP seminar. Meredith Crowley is Reader in International Economics at the Faculty of Economics, University of Cambridge. She will present the paper: "Dominant Currency Dynamics: Evidence on dollar-invoicing from UK exporters" (joint with Lu Han and Minkyu Son).
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.