U.S. Dollar Dominance and the Role of Local Currency Settlement Framework: Evidence from Thai Exports
Abstract
This paper examines factors behind the persistence of dominant currency pricing and the effectiveness of de-dollarization policies in the context of emerging market economies. Using a transaction-level customs dataset of Thailand spanning 2007–2024, we document the dominance of dollar invoicing in Thai export transactions, despite a gradual rise in baht invoicing. Such dollar dominance is largely explained by firm and industry characteristics, including imported input exposure, strategic complementarities and inertia in invoicing currency choice. Meanwhile, the introduction of the Local Currency Settlement Framework (LCSF) between Thailand and partner countries including Malaysia and Indonesia moderately reduces dollar reliance, with effects being heterogeneous across firms and industries. Notably, we find that dollar-denominated liabilities do not influence invoicing choice, suggesting some disconnection between operational and financial hedging.
