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The Dominant Currency Financing Channel of External Adjustment


  • Camila Casas

    () (Banco de la República de Colombia)

  • Sergii Meleshchuk


  • Yannick Timmer



We provide evidence on a new transmission channel of exchange rate movements to net exports. Using a novel identification strategy by exploiting firms’ foreign currency debt and debt maturity structure in Colombia, we analyze the trade response of firms that are financially more exposed to a depreciation through a debt revaluation channel. We show that while exports are unaffected by the debt revaluation, imports contract more sharply for firms with larger financial exposure to the depreciation. However, the import response is exclusively driven by firms that import but do not export. The results can be rationalized by a model where exporters are shielded from debt revaluation as they have revenues in foreign currency. We conclude that dominant currency financing strengthens the expansionary impact of a depreciation on the trade balance. **** RESUMEN: En este documento presentamos evidencia de un nuevo mecanismo de transmisión de movimientos de la tasa de cambios a la balanza comercial. Utilizamos una estrategia de identificación novedosa que aprovecha las diferencias en la deuda en moneda extranjera de las firmas colombianas y en las fechas de vencimiento de estos créditos para analizar los cambios en las exportaciones y las importaciones de las firmas con diferentes niveles de exposición financiera a una depreciación de la moneda a través de la revaluación de su deuda. Demostramos que una revaluación de la deuda no tiene efecto sobre las exportaciones, pero la contracción de las importaciones es más fuerte para aquellas firmas que están más expuestas financieramente a una depreciación. Sin embargo, la respuesta de las importaciones se explica únicamente por firmas importadoras que no exportan. Estos resultados se pueden racionalizar con un modelo en el que los exportadores están protegidos de revaluaciones de la deuda a través de ingresos en moneda extranjera. Concluimos que la financiación de las firmas en una moneda dominante refuerza el efecto expansivo de una depreciación en la balanza comercial.

Suggested Citation

  • Camila Casas & Sergii Meleshchuk & Yannick Timmer, 2020. "The Dominant Currency Financing Channel of External Adjustment," Borradores de Economia 1111, Banco de la Republica de Colombia.
  • Handle: RePEc:bdr:borrec:1111

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    References listed on IDEAS

    1. Friederike Niepmann & Tim Schmidt-Eisenlohr, 2017. "Foreign Currency Loans and Credit Risk: Evidence from U.S. Banks," CESifo Working Paper Series 6700, CESifo.
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    Cited by:

    1. Boz, Emine & Casas, Camila & Georgiadis, Georgios & Gopinath, Gita & Le Mezo, Helena & Mehl, Arnaud & Nguyen, Tra, 2020. "Patterns in invoicing currency in global trade," Working Paper Series 2456, European Central Bank.

    More about this item


    Imports; Exports; Exchange Rates; Foreign Currency Exposure; Capital Structure; Debt Revaluation; importaciones; exportaciones; tasa de cambio; descalces cambiarios; estructura del capital; revaluación de la deuda.;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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