International sanctions and the dollar: Evidence from trade invoicing

This paper shows that international sanctions can undermine the role of the US dollar in trade invoicing. The analysis is based on the episode of international sanctions targeting Russia after the invasion of regions of Ukraine in 2014. While European sanctions increased trade costs for firms located in the EU and conducting transactions with Russia, sanctions imposed by the United States affected firms located in third countries due to the extra-territoriality of the US law. This created an incentive to diversify away from the US dollar to avoid these sanctions when exporting to target countries such as Russia. The empirical exercise relies on detailed customs data for France with information on the currency of invoicing by transaction. Following the start of the Western sanctions on Russia in 2014, the propensity of French exporters to invoice their contracts in US dollars decreased. Estimation results highlight the role played by (i) strategic complementarities between firms, (ii) the diversification of Russian foreign reserves, (iii) US secondary sanctions targeting exports of dual-use goods, and (iv) threats of US secondary sanctions faced by exporters’ banks.