Currency Invoicing in International Trade: A Panel Data Approach

Abstract

The paper empirically investigates the determinants of currency invoicing in Dutch goods trade with OECD countries. To this end, a currency-share systems approach is employed, which is applied to quarterly panel data for 1987–1998. One of the key findings is that a country’s share of producer currency pricing falls if demand in the foreign export market falls. In addition, we find that the better developed the partner country’s banking sector and the larger its share in world trade, the lower is the share of Dutch guilder invoicing. A higher expected rate of inflation in the partner country increases Dutch guilder invoicing. The depth of the foreign exchange market of a currency, a country’s share in world trade, and a country being part of the European Union are key determinants of vehicle currency use.invoicing currency;Grassman’s law;exchange rate risk;local currency pricing;producer currency pricing;vehicle currencies