The Euro as Invoicing Currency in International Trade

61 Pages Posted: 24 Aug 2006  

Annette Kamps

Kiel Institute for the World Economy

Date Written: August 2006

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.

Keywords: Trade, Currency Invoicing, Panel Data

JEL Classification: F41, F42, L11

Suggested Citation

Kamps, Annette, The Euro as Invoicing Currency in International Trade (August 2006). ECB Working Paper No. 665. Available at SSRN: https://ssrn.com/abstract=926402

Annette Kamps (Contact Author)

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, D-24100
Germany

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