Currency convertibility

Currency convertibility,

Definition of Currency convertibility:

  1. There tends to be a correlation between a country's economy and the convertibility of its currency. The stronger an economy is on the global scale, the more likely its currency will be easily converted into other major currencies. Government constraints may result in a currency with a low convertibility. For example, a government with low reserves of hard foreign currency usually restricts currency convertibility because that government would otherwise not be in a position to intervene in the foreign exchange market (i.e., revalue, devalue) to support their own currency if and when necessary.

  2. Right of the holder of a currency to exchange it for another currency at the current exchange rates. Currency convertibility is an essential element of free trade.

  3. Currency convertibility is the ease with which a country's currency can be converted into gold or another currency. Currency convertibility is important for international commerce as globally sourced goods must be paid for in an agreed upon currency that may not be the buyer's domestic currency. When a country has poor currency convertibility, meaning it is difficult to swap it for another currency or store of value, it poses a risk and barrier to trade with foreign countries who have no need for the domestic currency.

Meaning of Currency convertibility & Currency convertibility Definition