Currency Convertibility

Currency Convertibility

The state of or the ease with which a currency may be exchanged for a foreign currency. Currency convertibility is vital in the foreign exchange market; higher convertibility means that a currency is more liquid and therefore more likely to trade. Factors affecting convertibility include the availability of foreign currency reserves in a given country and domestic regulations seeking to protect local investors from bad investment decisions in, say, a currency undergoing a period of hyperinflation. A few socialist governments even issue inconvertible currencies, such as the Cuban peso, in order to protect their citizens from perceived capitalist infiltration. See also: Inconvertibility.