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The euro as invoicing currency in international trade

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  • Kamps, Annette

Abstract

This paper investigates the determinants of currency invoicing in international trade. Although the currency of invoicing is central for the transmission of monetary policy, empirical research on this topic is scarce due to a lack of data. With a new extensive invoicing dataset and a panel model analysis this paper shows that a country's membership or prospective membership of the EU plays a decisive role in the choice of the euro as invoicing currency. The role of the euro as vehicle currency is increasing but still limited when compared to the U.S. dollar. Monetary instability and low product differentiation favour vehicle pricing in U.S. dollar. An increase of euro invoicing due to higher exchange rate volatility supports the role of the euro as vehicle currency, however. High market power defined as the share of a country's total exports to world exports and membership of the euro area make invoicing in the home currency (euro) more likely. JEL Classification: F41, F42, L11

Suggested Citation

  • Kamps, Annette, 2006. "The euro as invoicing currency in international trade," Working Paper Series 665, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:2006665
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    More about this item

    Keywords

    currency invoicing; international trade; Panel data;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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