Dominant Currencies: How Firms Choose Currency Invoicing and Why it Matters

50 Pages Posted: 3 Nov 2020

See all articles by Mary Amiti

Mary Amiti

Federal Reserve Bank of New York

Oleg Itskhoki

Princeton University - Department of Economics

Jozef Konings

University of Liverpool

Multiple version iconThere are 2 versions of this paper

Date Written: October 2020


The currency of invoicing in international trade is central for the international transmission of shocks and macroeconomic policies. Using a new dataset on currency invoicing for Belgian firms, we analyze how firms make their currency choice, for both exports and imports, and the implications of this choice for exchange rate pass-through into prices and quantities. We derive our estimating equations from a theoretical framework that features variable markups, international input sourcing, and staggered price setting with endogenous currency choice, and also allowing for the dominant currency choice. Our structural specification provides a new test of the allocative consequences of nominal rigidities, by estimating the treatment effect of foreign-currency price stickiness on the dynamic response of prices and quantities to exchange rate changes, controlling for the endogeneity of the firm's currency choice. We show that flexible-price determinants of exchange rate pass-through are also the key firm characteristics that determine currency choice. In particular, small non-importing firms tend to price their exports in euros (producer currency) and exhibit close to complete exchange-rate pass-through into destination prices at all horizons. In contrast, large import-intensive firms tend to denominate their exports in foreign currencies, and especially in the US dollar, exhibiting a lower pass-through of the euro-destination exchange rate and a pronounced sensitivity to the dollar-destination exchangerate. Finally, the effects of foreign-currency price stickiness are still significant beyond the one-year horizon, but gradually dissipate in the long run, consistent with sticky price models of currency choice.

Keywords: currency choice, exchange rate pass-through

JEL Classification: E31, F31, F41

Suggested Citation

Amiti, Mary and Itskhoki, Oleg and Konings, Jozef, Dominant Currencies: How Firms Choose Currency Invoicing and Why it Matters (October 2020). Available at SSRN:

Mary Amiti (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Oleg Itskhoki

Princeton University - Department of Economics ( email )

Fisher 306
Princeton, NJ 08544-1021
United States
+1 (609) 258-5493 (Phone)


Jozef Konings

University of Liverpool ( email )

Chatham Street
Liverpool, L69 7ZA
United Kingdom

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