Front Matter Page
Research Department1
Contents
EXECUTIVE SUMMARY
INTRODUCTION
DOMINANT CURRENCY PRICING
A. Key Concepts
B. Evidence from Manufacturing Trade
C. Evidence from Services Trade
DOMINANT CURRENCY FINANCING
A. Key Concepts
B. Macro Evidence
C. Micro-level Evidence
KEY TAKEAWAYS AND FUTURE WORK
BOXES
1. Factors Behind Firms’ Pricing Currency Choices
2. Data on Trade Invoicing Currencies
3. Constructing Foreign Currency Debt Exposure Measures for NonFinancial Firms
FIGURES
1. Trade with the United States and US Dollar Invoicing
2. Export Invoicing Currencies
3. Empirical Framework
4. Exchange Rate Pass-through from Bilateral and US Dollar Exchange Rate
5. Trade Volume Responses to Bilateral and US Dollar Exchange Rates
6. Contribution of Trade Volumes to External Rebalancing
7. Global Trade in Goods and Services
8. Services Trade Value Elasticities to Bilateral and US Dollar Exchange Rates
9. Tourism Volume Elasticities to Bilateral and US Dollar Exchange Rates
10. Foreign Currency Borrowing in the NonFinancial Corporate Sector
11. Foreign Currency Exposures in the NonFinancial Corporate Sector, by Instrument
12. Short-term Trade Volume Elasticities
13. Effect of Foreign Currency Leverage on Firms’ Trade Flows and Borrowing
14. Financial Channel of Exchange Rate: Evidence from Colombia
TABLES
1. Expected Effects of a Depreciation on Trade Volumes
APPENDICES
1. Dominant Currency Pricing
2. Measuring FX Debt Exposure in the Non-Financial Corporate Sector
3. The Financial Channel of Exchange Rates—Macro Empirical Specification and Data
APPENDIX TABLES
A1.1. Currency of Invoicing—Baseline Specification
A1.2. Currency of Invoicing—Unweighted Regression
A1.3. Currency of Invoicing—Direct Evidence
A3.1. Baseline (unweighted)
A3.2. Weighted Regressions
A3.3. Estimates by USD invoicing share
References
This note benefited from invaluable feedback and input from Adolfo Barajas, Tam Bayoumi, Emine Boz, Federico Diez, Sebnem Kalemli-Ozcan, Francois de Soyres, Antonio Spilimbergo, Leonardo Villar, and various participants at the 2019 IMF Workshop on “Tariffs, Currencies and External Rebalancing” (Washington, DC). Our colleagues, Fadhila Alfaraj, Bas Bakker, Jennifer Beckman, Houda Berrada, Helge Berger, Eugenio Cerutti, Alfredo Cuevas, Mai Dao, Fei Han, Olamide Harrison, Michelle Hassine, Venkat Josyula, Huidan Lin, Meera Louis, Charlotte Lundgren, Begona Nunes, Mahvash Qureshi, Natalie Ramirez, Christoph Rosenberg, Edgardo Ruggiero, Carlos Sanchez-Munoz, Alasdair Scott, Silvia Sgherri, Niamh Sheridan, Nico Valckx, and Yuanyan Sophia Zhang contributed with insightful comments. Jair Rodriguez, Kyun Suk Chang, and Zijiao Wang provided excellent research support.