Has the euro affected the choice of invoicing currency?

Abstract

We present a new approach to study empirically the effect of the introduction of the euro on the pattern of currency invoicing. Our approach uses a compositional multinomial logit model, in which currency choice is explained by both currency-specific and countryspecific determinants. We use unique quarterly panel data on the invoicing of Norwegian imports from OECD countries for the 1996-2006 period. We find that eurozone countries have substantially increased their share of home currency invoicing after the introduction of the euro, whereas the home currency share of non-eurozone countries fell slightly. In addition, the euro as a vehicle currency has overtaken the role of the US dollar in Norwegian imports. The substantial rise in producer currency invoicing by eurozone countries is primarily caused by a drop in inflation volatility and can only to a small extent be explained by an unobserved euro effect.JEL codes: F33, F41, F42, E31, C25

Invoicing Currency and Symmetric Pass-Through of Exchange Rates and Tariffs: Evidence from Malawian Imports from the EU

“…6 Interestingly, at both the EU and EMU level, mineral products have a higher share of Malawi Kwacha invoicing of just over 30 percent in both cases. All these statistics are unlike Norwegian imports in which the euro was reported to have overtaken the U.S. dollar Ligtharty and Werner (2012).…”

“…We can thus infer that the pass-through of producer currency pricing is higher than vehicle currency pricing for EMU products. Since both the euro and the US dollar are vehicle currencies for non-EMU countries, the higher euro pass-through may be associated with proximity to the euro (Ligtharty & Werner, 2010).…”

“…They conclude that the dollar exchange rate quantitatively dominates the bilateral exchange rate in pass-through to prices in the former and the dominant currency pass-through is high in the latter. Subsequent studies on exchange rate pass through have dealt with the invoice currency choice in relation to the exchange rate using transaction level data (Devereux et al (2017a); ), the invoice currency choice and its determinants (Ligtharty and Werner (2012); Gopinath (2016)) or the tariff pass-through behavior separately (Hayakawa and Ito (2015)). However, the paper further demonstrates that even when the dollar has the highest share, other vehicle currency ERPT matters as much as the "dominant" currency, hence the focus on the euro.…”

“…Kamps (2006) empirically showed that a country's membership or prospective membership of the EU increases the probability of choosing the euro as an invoicing currency. Ligtharty and Werner (2012) found that the euro tends to be chosen more frequently and has overtaken the U.S. dollar as a role of vehicle currency in Norwegian imports. This demonstrates that the euro is likely to continue to become important in international trade and would have implications, perhaps similar to, the dollar in explaining exchange rate pass-through.…”

Migration and the Currency Denomination of Trade

“…Empirical works include Donnenfeld and Haug () and Goldberg and Tille (), which examine Canadian imports. Kamps () studies aggregated EU trade, and Ligthart and Werner () examine aggregated Norwegian data. Surveys of Japanese firms are examined in Takatoshi et al.…”