Export Dynamics and the Invoicing Currency

Abstract

In this paper, using finely disaggregated firm-level export data for Thailand, we examine how firms' export experience is related to the dynamic choice of the invoicing currency. We present evidence that the majority of exporters seldom change the invoicing currency for the same product/destination during the sample period. This evidence implies that changing the invoicing currency is costly for exporters. We also find that even after controlling for export size, the probability of choosing the export country's currency, or the producers' currency for the first export is significantly higher than for the export of the second and subsequent products/destinations. Assuming importers are risk averse, this finding implies that the accumulation of firm export experience provides better know-how for exchange rate risk management and enhances the use of currencies other than the PC in order to gain better profit. We also propose a theoretical model that provides the rationale for these empirical findings.