Currency Convertibility

Currency Convertibility

The ease with which a country's currency can be converted into gold or another currency. Convertibility is extremely important for international commerce. When a currency in inconvertible, it poses a risk and barrier to trade with foreigners who have no need for the domestic currency.

Notes:

Government restrictions can often result in a currency with a low convertibility. For example, a government with low reserves of hard foreign currency often restrict currency convertibility because the government would 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.

See also: Currency, Currency Swap, Devaluation, Dual Exchange Rate, Exchange Rate, Foreign Currency Effects, Forex, Hard Currency, Revaluation, Soft Currency