Liu, Tao and Lu, Dong and Zhang, Ruifeng (2017): Currency choice in international trade: a new monetarist approach and firm-level evidence.
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Abstract
Financial market imperfections severely restrict currency use in international trade. We develop a unified search-based framework with financial frictions to address the determinants for currency choice, emphasizing the roles of trade finance and financial market development, as well as macro, micro factors and firm-level bargaining power. In an open economy monetary search model with financial intermediation, the usage of a particular currency will emerge endogenously and strategic complementarities among exporters, importers, and financial intermediation reinforce the status of international currency. With highly disaggregated data from Colombia, we provide firm-level evidence that financial factors significantly affect the patterns of currency usage. We show that exporters prefer the currency with a more developed financial market, especially for small firms in financially vulnerable sectors. In particular, a developing country with medium-level of financial development could enhance its currency usage by more than 10% if they further develop their financial market. Meanwhile, bad monetary policy and low bargaining power of exporters will hurt the popularity of currency, although empirically firm-level bargaining power only has a secondary effect.
Item Type: | MPRA Paper |
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Original Title: | Currency choice in international trade: a new monetarist approach and firm-level evidence |
Language: | English |
Keywords: | Invoicing currency; Trade finance; Financial intermediation; Financial development; Monetary search |
Subjects: | F - International Economics > F1 - Trade > F10 - General F - International Economics > F3 - International Finance > F33 - International Monetary Arrangements and Institutions F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics |
Item ID: | 80068 |
Depositing User: | Tao Liu |
Date Deposited: | 08 Jul 2017 06:54 |
Last Modified: | 16 Oct 2019 18:27 |
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URI: | https://mpra.ub.uni-muenchen.de/id/eprint/80068 |
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Currency choice in international trade: a new monetarist approach and firm-level evidence. (deposited 16 May 2017 05:01)
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Currency choice in international trade: a new monetarist approach and firm-level evidence. (deposited 22 May 2017 08:03)
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Currency choice in international trade: a new monetarist approach and firm-level evidence. (deposited 22 May 2017 08:03)