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Currency Invoicing in International Trade: an Empirical Investigation

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  • Shabtai Donnenfeld
  • Alfred Haug

Abstract

The authors investigate the choice of currency of invoicing in international trade under exchange rate fluctuations. Predictions derived from a model developed by Donnenfeld and Zilcha in 1991, and others, regarding the optimal choice of currency of invoice are tested for imports into Canada. The authors employ a unique dataset from Customs Canada that covers a six‐year period and lists all currencies used for invoicing by industry. The empirical results support the hypothesis that there is a positive relationship between the extent of invoicing in the importer's national currency and exchange rate risk, and a negative relationship between invoicing in the exporter's currency as well as invoicing in a third currency and exchange rate risk. The empirical results further indicate that relative size of a country plays a role in determining the currency of invoicing.

Suggested Citation

  • Shabtai Donnenfeld & Alfred Haug, 2003. "Currency Invoicing in International Trade: an Empirical Investigation," Review of International Economics, Wiley Blackwell, vol. 11(2), pages 332-345, May.
    • Handle: RePEc:bla:reviec:v:11:y:2003:i:2:p:332-345
    DOI: 10.1111/1467-9396.00386
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    References listed on IDEAS

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