The Swift Decline of the British Pound: Evidence from UK Trade-invoicing after the Brexit Vote

Using administrative transactions data from the United Kingdom, we document a swift decline in sterling use among British exporters after the 2016 Brexit vote. Through a novel decomposition, we document most of this decline comes from two sources: (i) continuously-operating firms switching from sterling to dollars or local currencies and (ii) reductions in trade volumes and transactions for sterling-loyal firms. We quantify the role of firm and market heterogeneity in driving these changes and document that firms which served markets with more US competitors and used more dollar-invoiced imported inputs were more likely to switch to dollars after the Brexit vote. Altogether, our findings provide the first quantitative evidence on the channels that contribute to changes in aggregate invoicing shares amidst political upheaval.