convertibility

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Convertibility

The ability to exchange a currency without government restrictions or controls.

Convertibility

The state of or the ease with which a currency may be exchanged for a foreign currency. Currency convertibility is vitally important in the foreign exchange market; higher convertibility means that a currency is more liquid and, therefore, less difficult 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.

convertibility

the extent to which a financial security such as a FOREIGN CURRENCY or CONVERTIBLE LOAN can be exchanged for some other currency or financial ASSET.

convertibility

the extent to which one foreign currency or INTERNATIONAL RESERVE ASSET can be exchanged for some other foreign currency or international reserve asset.

International trade and investment opportunities are maximized when the currencies used to finance them are fully convertible, i.e. free of FOREIGN EXCHANGE CONTROL restrictions.