Desirability of Competition in Currency of Invoicing

Two stylized facts underline the dollar's role in the world, 1) it dominates cross-border as- set/debt markets and international trade transactions, and 2) country- and firm-level dollar invoicing shares are stable. Using transaction-level import data and exploiting an unanticipated US monetary policy action, we document that Indian importers substitute the dollar with Euro invoicing after a decline in the supply of cross-border dollar finance, challenging the second fact. We establish a novel dollar invoicing channel by documenting that trade losses are concentrated among firms unable to substitute away from dollar invoicing. Global banks shield trade by supporting invoicing in alternate currencies.