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Invoicing currency and settlement currency: An empirical study and implications for RMB internationalization

Author

Listed:
  • Liu, Tao
  • Wang, Xiaosong
  • Woo, Wing Thye

Abstract

This paper studies the relationship between invoicing currency and settlement currency in international trade. First we build a three-country model to highlight the various drivers of currency choices. Then, with a country-level dataset from 2011 to 2017, we confirm a positive feedback between the dual functions of international currencies. For example, in a country’s export, a 1% increase of USD as settlement (invoicing) currency would raise the USD share in invoicing (settlement) currency by 0.47% (0.27%). Such pattern largely holds for USD and EUR in various empirical specifications, but it is not robust for other currencies. We further discuss the implications for RMB, which has considerable international influence as a settlement currency but still lags behind as an invoicing currency.

Suggested Citation

  • Liu, Tao & Wang, Xiaosong & Woo, Wing Thye, 2025. "Invoicing currency and settlement currency: An empirical study and implications for RMB internationalization," China Economic Review, Elsevier, vol. 94(PC).
    • Handle: RePEc:eee:chieco:v:94:y:2025:i:pc:s1043951x25002536
    DOI: 10.1016/j.chieco.2025.102595
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    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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