The Network Drivers of Trade Currency Invoicing

78 Pages Posted: 1 Oct 2024

See all articles by Tommaso Mancini Griffoli

Tommaso Mancini Griffoli

International Monetary Fund (IMF)

Christopher Greiner

London School of Economics & Political Science (LSE) - Department of Finance

Christian Julliard

London School of Economics & Political Science (LSE) - Department of Finance; Centre for Economic Policy Research (CEPR)

Kathy Yuan

London School of Economics & Political Science (LSE) - Department of Finance

Date Written: August 28, 2024

Abstract

Using an equilibrium network model and a large international panel of cross-border trade, we analyse empirically the drivers of foreign currency invoicing. First, we find strong evidence of strategic complementarity in currency invoicing across countries: Exporting countries tend to invoice more in a given currency when their main trade partners invoice in that same currency. This in turn leads to an amplification of domestic shocks through the trade network. Second, key players for a given currency are not only countries that invoice most of their exports in that foreign currency (e.g., China, South Korea, and Russia), but also countries that are central in the international trade network (e.g., Japan, Germany, and Canada). Third, at the country-level, we find evidence of strategic complementarity, or natural hedging, between the choices of export and import currencies. Fourth, in counterfactual analysis we find that, due to the large network externalities that we identify, the position of the USD as dominant trade currency is inherently fragile with respect to the currency invoicing choices of EU and BRICS countries.

Keywords: Cross-border payments, Network, Peer effect, Trade invoicing, Dominant currency

JEL Classification: F14, F31, F2, F4, G15

Suggested Citation

Mancini Griffoli, Tommaso and Greiner, Christopher and Julliard, Christian and Yuan, Kathy Zhichao, The Network Drivers of Trade Currency Invoicing (August 28, 2024). Available at SSRN: https://ssrn.com/abstract=4941343 or http://dx.doi.org/10.2139/ssrn.4941343

Tommaso Mancini Griffoli

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Christopher Greiner

London School of Economics & Political Science (LSE) - Department of Finance ( email )

Christian Julliard (Contact Author)

London School of Economics & Political Science (LSE) - Department of Finance ( email )

United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Kathy Zhichao Yuan

London School of Economics & Political Science (LSE) - Department of Finance ( email )

Old Building
Houghton Street
London, London WC2A 2AE
United Kingdom
+44 (0)20 7955 6407 (Phone)
+44 (0)20 7849 4647 (Fax)

HOME PAGE: http://fmg.lse.ac.uk/~kathy

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