Import Intensity and Currency Invoicing Choice: Evidence from the Brexit Referendum

The currency in which exporters invoice determines who bears exchange-rate risk and how exchange-rate movements pass through to prices. We study how imported inputs and macroeconomic risk shape this choice, using detailed customs data on exporters in twelve countries over 2010–2023. Risk exposure is a bilateral index built from conditional second moments of the exchange rate in a two-country dynamic stochastic general equilibrium (DSGE) model, and enters mixed-logit models of invoicing choice alongside firm-level import intensity. We instrument import intensity with sector-level input tariffs, and the 2016 Brexit referendum provides a quasi-experimental change in the risk environment of UK exporters. We find that local-currency pricing increases non-linearly with import intensity, with a transition region around 0.48, close to the model’s benchmark of one half. It is also more frequent where risk exposure is higher. After the referendum, import-intensive UK exporters raised local-currency pricing by about 23 percentage points more than other UK exporters. This difference is sensitive to the coding of unvalidated transactions, and inference allowing for a single treated country does not reject zero at the 5% level. The referendum also changed trade-policy expectations, so the differential is consistent with a monetary-stability channel but does not by itself identify it.