TY  - JOUR
AU  - Goldberg,Linda S.
AU  - Tille,Cedric
TI  - Vehicle Currency Use in International Trade
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11127
PY  - 2005
Y2  - February 2005
UR  - http://www.nber.org/papers/w11127
L1  - http://www.nber.org/papers/w11127.pdf
N1  - Author contact info:
Linda S. Goldberg
Research Department, 3rd Floor
Federal Reserve Bank-New York
33 Liberty Street
New York, NY 10045
Tel: 212/720-2836
Fax: 212/720-6831
E-Mail: linda.goldberg@ny.frb.org

Cédric Tille
Graduate Institute for International
and Development Studies
Department of Economics
Pavillon Rigot, Avenue de la Paix 11 A
1202 Geneve, Switzerland
Tel: 41229085928
Fax: 41227333049
E-Mail: cedric.tille@graduateinstitute.ch
AB  - Although currency invoicing in international trade transactions is central to the transmission of monetary policy, the forces motivating the choice of currency have long been debated. We introduce a model wherein agents involved in international trade can invoice in the exporter's currency, the importer's currency, or a third-country vehicle currency. The model is designed to contrast the contribution of macroeconomic variability with that of industry-specific features in the selection of an invoice currency. We show that producers in industries with high demand elasticities are more likely than producers in other industries to display herding in their choice of currency. This industry-related force is more influential than local macroeconomic performance in determining producers' choices. Drawing on data on invoice currency use in exports and imports for twenty-four countries, we document that the dollar is the currency of choice for most transactions involving the United States. The dollar is also extensively used as a vehicle currency in international trade flows that do not directly involve the United States. Consistent with the results of our model, this last finding is largely attributable to international trade in reference-priced and organized-exchange traded goods. Although the magnitude of business-cycle volatility matters for invoicing of more differentiated products, it is less central for invoicing nondifferentiated goods.
ER  -