Vehicle currency use in international trade

We explore the major driving forces for currency invoicing in international trade with a simple model and a novel dataset covering 24 countries. We contrasts a “coalescing” effect, where exporters minimize the movements of their prices relative to their competitors', with incentives to hedge macroeconomic volatility and transaction costs. The key determinants of invoice currency choice are industry features and country size, with some role for foreign-exchange bid–ask spreads. The coalescing effect also goes a long way to explaining the well-known dominance of the dollar. Trade flows to the United States are predominantly invoiced in dollar, as foreign exporters face competition with U.S. firms. The use of the dollar in trade flows that do not involve the United States reflects trade in homogeneous products where firms need to keep their price in line with their competitors'.     

Analysis on the determinants of currency invoicing in Korean trade

We investigate the determinants of currency invoicing in trade using import and export transactions data between Korea and its 30 major trading partners from 2000 to 2013. We find a noticeably different pattern of currency invoicing from advanced countries. For example, a large market share of Korean exporters in partner countries does not guarantee more use of the Korean won in currency invoicing. This might be attributed to a low degree of Korean won's internationalisation and the strong coalescing effect. We also observe that the higher the level of industry product differentiation, the weaker the coalescing motive. In addition, we verify that the share of invoicing in the currency of Korea's trading partner tends to be higher when the partner country has (i) a larger trade volume, (ii) higher level of financial development, (iii) lower inflation and lower price volatility and (iv) its own currency with lower transaction costs.     

The currency denomination of exports — A questionnaire study

We report survey results on the currency choice of a random sample of Swedish exporters. We find that for an overwhelming share of exports, the price, invoice and settlement currency is the same. The currency of the customer is the most used, with Swedish kronor and vehicle currencies accounting for approximately equal shares. Currency choice is similar for intra-firm and between-firm trade. We also find that negotiations are important for both the price and for the currency choice. A minority of firms use posted prices for their main exports — the median price adjustment for those firms is once per year.     

Debt composition and balance sheet effects of exchange rate volatility in Mexico: a firm level analysis

We use Mexican firm-level data to study the role of currency mismatches in the corporate sector in exacerbating the negative effects of a devaluation. We also investigate what drives Mexican firms to borrow in foreign currency. We find that holding dollar denominated debt in a devaluation adversely affects firms’ earnings and investment. However, exporters invested more than non-exporters in the same period. We also find that the negative effect of dollar debt was stronger than the positive effect of exports in the 1994 crisis for firms with positive dollar debt and/or exports, relative to firms that did not borrow abroad and/or export. This was a result of imperfect currency matching by firms. However, in the 1998 crisis firms managed the denominations of their inflows and outflows much better and these two effects were roughly equal in magnitude. We also find some evidence of currency matching by exporters, especially after the introduction of the floating exchange rate.     

国际贸易结算货币理论及其对我国的启示

随着多边贸易和国际货币多元化的不断发展,国际贸易结算货币的选择对降低汇率风险和交易成本,提高经济效益显得越来越重要。本文按三个发展阶段对国际贸易结算货币理论进行了述评,在此基础上探讨了目前我国对外贸易结算货币的选择及人民币作为国际贸易结算货币的可能性。认为,当前美元仍应是我国对外贸易首选结算货币,但我国应积极扩大人民币在边境贸易中的计价结算,并努力创造条件促使人民币在远洋贸易中计价结算,以降低国际贸易的汇率风险及促进人民币国际化的发展。     

International Competitiveness and the Single Currency

This article puts together the results of a five-year comparative study of UK and Irish manufacturing exporters and discusses its implications for currency unions and particularly the Euro. Overall, the results indicate a positive linkage between exchange-rate stability and individual firms' competitiveness. Irish exporters have benefited from their government's approach to European Monetary Union (EMU) and will continue to do so. The research identifies changes in firm-level competitive activity that occur where the exchange rate is fixed, and argues that exchange-rate stability leads to sustained long-run competitive advantage for firms located within the currency area (over those that are not). European currency while existing Euro-zone countries will be assessing whether they have benefited from it. At the same time, countries elsewhere in the world may need to consider abandoning their independent currencies in favour of the dollar, the Euro, or the Yen.     

Those Current Account Imbalances: A Sceptical View1

The international current account imbalances, where the United States has a vast deficit, and several countries, notably Japan, China, Germany and the oil exporters have corresponding surpluses, are usually seen as problems. The argument here is that current account imbalances simply indicate intertemporal trade – the exchange of goods and services for claims. There are likely to be gains from trade of that kind as from ordinary trade. What, then, are the problems? This paper considers five scenarios, notably one where net savings of the surplus countries decline so that the world real interest rate rises, and another where the US fiscal deficit is reduced, so that the world real interest rate falls and there could be a worldwide aggregate demand problem, essentially caused by the high net savings of the surplus countries. The paper reviews the reasons for the large surpluses in terms of savings and investment ratios (especially China) and also discusses the long‐term problem for the United States. While four of the scenarios involve a decline in the dollar, they do not necessarily imply a sudden – and even ‘disruptive’– dollar crisis.     

Currency Substitution and Price Endings: Right Digit Effect

ABSTRACT

The strategic manipulation of prices. rightmost digits has been a tactic used by retailers in the western world for decades. By studying the internationalization of pricing tactics in a global economy, our research adds a much needed contribution to the literature of price endings and pricing tactics in global markets. We find that at lower price levels, consumers exposed to a 99 ending price in a currency substitution market are more likely to purchase the product compared to consumers in the US market. At higher price levels, on the other hand, consumers in either market situation exhibit no change in purchase intentions. Thus, the 99 ending tactic has no effect on consumers when the product is expensive. The use of the right digit effect by managers in a currency substitution/ dollarized economy as a way of persuading consumers to buy is still likely to be more successful compared to the USA market. As such, firms in a dollarized economy should structure their pricing strategies while taking into consideration the type of product they are offering and the consumer market they are dealing with.     

美元周期性波动对我国跨境资本流动的非对称效应研究

有效应对和防范跨境资本流动冲击，维护外汇市场稳定是贯彻落实习总书记“打好防范化解重大风险攻坚战”的重要举措。目前，美元已进入强周期，我国正面临着由强势美元引发的货币贬值、资本外流等风险，当前背景下研究美元周期性波动特征、区制划分及其对跨境资本流动的影响具有重要的理论和现实意义。本文基于2006年10月至2018年6月的月度数据，运用理论模型和MSVAR模型分析美元周期性波动对我国跨境资本流动的非对称效应。研究表明，中美利差对跨境资本流动的影响存在非对称效应，当投资者不存在恐慌避险情绪时，利差的变化将不会引起大规模的跨国资本流动。美元指数对跨境资本流动的冲击效应具有一定的时滞性，美元升值将引发跨境资本流出，且冲击效应持续时间明显长于利差冲击。VIX指数和人民币汇率对跨境资本流动影响较弱，但呈现非对称性特征。加息和缩表后美元升值对资本外流的推动作用明显强于加息和缩表前，表明第三轮强周期下美元升值对我国跨境资本流动的影响更大。     

Global monetary policy under a dollar standard

This paper derives an optimal monetary policy in a world with a dollar standard, defined as an environment in which all traded goods prices are set in US dollars, so that exchange rate pass-through into the US price level is zero. We show that the US is essentially indifferent to exchange rate volatility, while the rest of the world places a high weight on exchange rate volatility. In a Nash equilibrium of the monetary policy game, US preferences dominate; the equilibrium is identical to one where the US alone chooses world monetary policy. Despite this, we find surprisingly that the US loses from the dollar's role as an international currency, since the absence of exchange rate pass-through leads to inefficient expenditure allocations within the US. Finally, we derive the conditions for a dollar standard to exist.     

The effect of the Uruguay round on the intensive and extensive margins of trade

Do tariffs inhibit trade flows by limiting the entry of exporters (‘firm extensive margin’) or by restricting the average volume exported by each firm (‘firm intensive margin’)? Using a gravity equation approach, we analyze how the decrease in tariffs promoted during the 90s by the Uruguay Round multilateral trade agreement affected the trade margins of French firms for 57 sectors and 147 countries from 1993 to 2002. Our main contribution is to estimate the elasticity of trade on both margins, controlling for the unobserved heterogeneity of trade flows thanks to a three-dimensional panel and to time-varying tariffs as a measure of variable trade costs. Our results show that the number of firms exporting in a given sector to a given destination is related to the level of tariffs. But they also show that the decrease in tariffs induced by the implementation of the Uruguay Round did not lead more firms to export and that it only induced incumbent exporters to increase their shipments. We control for two problems that may affect our basic specification: tariff changes may be endogenous and zero flows are not included. Our results are confirmed — even when the extensive margin is significant, its magnitude is very small.     

Firm heterogeneity in services trade: Micro-level evidence from eight OECD countries

This paper shows that smaller and less productive firms, as well as first-time exporters, are overproportionally affected by services trade barriers using micro-data from Belgium, Finland, Germany, Italy, Japan, Sweden, the United Kingdom and the United States. For these firms, both the propensity to export and export volumes to less restrictive destinations are significantly higher than to more restrictive destinations. In contrast, policy barriers measured by the OECD Services Trade Restrictiveness Index (STRI) do not affect export decisions of the largest, most productive and experience services firms. The pattern holds for two major modes of supply, cross-border services exports and foreign affiliate sales of services firms. The findings are consistent with firm sorting mechanisms in trade models with heterogeneous firms and hysteresis of export participation in the presence of sunk export costs.     

A Firm-level Examination of the Exports Puzzle: Why East Asian Exports Didn't Increase After the 1997–1998 Financial Crisis

We analyse a detailed panel dataset on Indonesian manufacturing firms to characterise the exports puzzle: the surprising absence of export-led growth after the massive currency devaluation during the 1997–1998 Asian financial crisis. Our results show that, consistent with trade theory predictions following better terms of trade, entry into export markets increased dramatically. In conflict with the same predictions, however, many pre-crisis exporters quit exporting. Thus stagnant export growth cannot be attributable to a lack of entrepreneurial ambition or activity amongst would-be exporters. Rather, it apparently resulted from constraints prohibiting continued exporting by pre-crisis exporters. Managerial reports of perceived constraints reveal little about why so many firms ceased exporting. However, ‘better’ firms, as proxied by foreign ownership, involvement in research and development, or investment in training, were more likely to continue exporting post-crisis.     

Risky business: Financial‐sector liberalization and China

China's dramatic growth in exports, its rising conflict with its trade partners over the perceived undervaluation of the renminbi, and the snail's pace of financial liberalization is pushing its bilateral trade and monetary relations to a boil. Discontent in the United States, Japan, Southeast Asia, and, most recently, Brazil, has led popular pundits and even country finance ministers to speak publicly of a “currency war” with many calling for the de‐pegging of the renminbi to the dollar and an immediate appreciation of China's currency. However, China's history of liberalization, beginning with the opening to the West in 1978, is well known as one of gradualism in trade and the financial spheres. Economic history is replete with economic crises brought on by too rapid or premature liberalization of countries' capital flows. This article presents the case both for and against capital account liberalization and highlights the risks that China in particular confronts in responding to external demands for greater openness and an appreciation of the renminbi. It clearly captures the tightrope that China must walk between responding to the demands of its trade partners and maintaining economic growth and political stability at home. © 2011 Wiley Periodicals, Inc.     

人民币实际有效汇率调整及其波动率与中美贸易收支

基于1995年1月至2007年9月的月度数据,分析了人民币实际有效汇率与中美贸易收支的关系。结果显示,人民币汇率波动率增加有助于缩小中美贸易收支顺差,人民币汇率升值无论长期或是短期,都不能解决中美双边贸易收支失衡问题。美国经济增长引致的进口需求是中美贸易顺差和我国收入增长的重要原因,在当前经济形势下,要警惕美国经济下滑导致我国的出口下降,进而使我国经济出现"硬着陆"的风险。     

Impact of Exchange Rate Uncertainty on Trade Flows: Evidence from Commodity Trade between the United States and the United Kingdom

Previous studies that investigated the impact of exchange rate volatility on the trade flows employed aggregate trade data and standard estimation techniques. They provided mixed results. In this paper we use disaggregated import and export data for 177 commodities traded between the United States and the United Kingdom to investigate whether volatility of the real bilateral dollar–pound exchange rate has any detrimental effect on trade flows at the commodity level. Additionally, we employ the bounds testing approach to cointegration and error‐correction modelling that is suitable for the models used mostly because it does not require pre‐unit‐root testing and variables in the model could be stationary, non‐stationary or a combination of the two. In most trade flow models estimated, we found a negative effect of exchange rate volatility on commodity trade.     

Information Role of U.S. Futures Trading in a Global Financial Market

Using a bivariate, asymmetric generalized autoregressive conditional heteroskedasticity model, we examine the patterns of information flows for three financial futures contracts that are dual‐listed on U.S. and Asian markets (i.e., Nikkei 225 Index, Eurodollar, and dollar–yen currency futures). The results indicate that the U.S. market plays a leading role in terms of pricing‐information transmission across markets. In terms of volatility spillover across markets, however, foreign markets seem to play a similar role (e.g., Nikkei Index futures) or even a more significant role than the United States (e.g., Eurodollar futures in Singapore and dollar–yen currency futures in Japan). © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:1071–1090, 2001     

Dollar illiquidity and central bank swap arrangements during the global financial crisis

While the global financial crisis was centered in the United States, it led to a surprising appreciation in the dollar, suggesting global dollar illiquidity. In response, the Federal Reserve partnered with other central banks to inject dollars into the international financial system. Empirical studies of the success of these efforts have yielded mixed results, in part because their timing is likely to be endogenous. In this paper, we examine the cross-sectional impact of these interventions. Theory consistent with dollar appreciation in the crisis suggests that their impact should be greater for countries that have greater exposure to the United States through trade and financial channels, less transparent holdings of dollar assets, and greater illiquidity difficulties. We examine these predictions for observed cross-sectional changes in CDS spreads, using a new proxy for innovations in perceived changes in sovereign risk based upon Google-search data. We find robust evidence that auctions of dollar assets by foreign central banks disproportionately benefited countries that were more exposed to the United States through either trade linkages or asset exposure. We obtain weaker results for differences in asset transparency or illiquidity. However, several of the important announcements concerning the international swap programs disproportionately benefited countries exhibiting greater asset opaqueness.     

Internationalization of currencies: The case of the US dollar and its challenger euro

This article examines the benefits and costs to the United States of having the US dollar used as an international currency and explains the factors underlying the dollar's use internationally. The main benefit for the United States is that it derives seigniorage from the dollar's international use while the main cost is that there is less scope for controlling domestic monetary conditions. There are three prerequisites for the international use of a currency: (1) confidence in the political stability of the issuing country; (2) deep, broad, and open financial markets in the issuing country; and (3) a large share of world exports on the part of the issuing country. The implications of the euro for the dollar's leading international position are discussed. Data are presented showing that the dollar is the world's leading international currency.     

Debt composition and balance sheet effects of exchange rate depreciations: a firm-level analysis for Chile

By studying the behavior of foreign currency borrowing, maturity, sales and the investment decisions of firms listed in the Chilean Stock Exchange from 1994 to 2001, this paper assesses whether in the aftermath of the Asian crisis of the late 1990s the depreciation of the local currency (Chilean peso) affected these firms’ real and financial decisions. At issue is the contrast between a negative net-worth effect and a potential expansionary competitiveness effect for the tradable sector. We find that there exists little evidence that devaluations cause a positive impact on investment and sales for firms with dollar denominated debt. The maturity structure of Chilean firms is mainly explained by the size of the companies. Large firms will have a debt structure biased to higher maturities. Analyzing dollar denominated debt composition the evidence shows that larger firms maintained a higher proportion of dollar denominated debt reflecting the development of the financial sector in Chile.