List of Freely Convertible Currencies

A currency that is fully convertible or freely convertible is a currency that does not have any government restriction during the currency exchange. Convertibility allows for the exchange of money into cash or into any other currency. A currency is said to be freely convertible when there are no restrictions for its conversion in place. Examples of a fully convertible currency include the US Dollar and the Euro. See also the full list of convertible currencies.

The main difference between freely convertible, restricted currencies and closed currencies is that freely convertible currencies can be exchanged for other currencies without any restrictions, restricted currencies have some limitations on their exchange, while closed currencies cannot be exchanged for other currencies at all.

Currency convertibility

Currency convertibility is very important while taking part in international trade where different currencies are involved. Some countries pass legislation restricting their currencies from being exchanged. In such cases, it makes international trade very difficult. Controls on convertibility are means of monetary control by governments.

Advantages of freely convertible currencies

The ability to convert currency into different currencies offers the following benefits. Convertibility ensures integration of the world economy by easing the international trade. This is because there is an increase in capital flows between countries. It also provides high economic growth, ensuring improved living standards through trade. Convertibility encourages imports by increasing their profitability. Profitability increases because the foreign exchange rate is higher compared to the fixed exchange rate.

Convertibility also encourages import substitution. This happens because the currency exchange rate is usually higher compared to the fixed rates, making the prices of imports higher. This discourages imports, thus making a country to rely on local production. It also encourages people to remit funds from abroad. Funds sent from overseas can be exchanged to the local currency easily. Finally, convertibility is a balancing mechanism. Over-valued exchange rate leads to a deficit in the balance of payment and currency depreciation. Moreover, it discourages imports by increasing their prices, thereby encouraging exports. In the end, it ensures that there is a balance in both imports and exports.

Convertibility of capital account and current account

Convertibility through the capital account is possible through portfolio capital flow, direct investment flows and flows of borrowed cash. Convertibility of currency can either be through the capital account or current account. Current account convertibility, on the other hand, is whereby one can convert currency from one currency to another without any restriction or without seeking permission from the government. The current market prices determine convertibility.

List of convertible currencies

The following is a list of fully convertible currencies.

Partially convertible currencies

A partially convertible currency refers to a currency that can be traded for other currencies, but its exchange is subject to certain limitations, typically imposed by the government that issues the currency.

Here is a list of partially convertible currencies:

Non-convertible currencies and non-deliverable forward (NDF)

Non-deliverable forward is a strategy where different parties strike a deal to settle profit or losses by the use of foreign currencies for future contracts before a contract can expire. The difference between the price of the prevailing spot currency and the price agreed to be paid determines profit or loss. The currencies are crucial in foreign markets and foreign exchange.

The settlement should be done two days before the contract expires. The US dollars are often used in settling the agreed prices. International businesses that involve the use of non-convertible currencies use NDFs to trade. The NDF makes it possible for the investor to have a position in the international currency market in instances where the government does not allow exchanges. NDF, therefore, is a financial instrument that allows trading with nations with non-convertible currencies. NDFs are traded over the counter since they do not have established markets.

List of non-convertible currencies and NDF currencies

The following is a list of non-convertible currencies with an NDF market.

Cryptocurrencies

Most cryptocurrencies are even more freely convertible and tradable than any of the above currencies. Bitcoin is limited in supply, resistant to censorship, very secure, divisible, durable and very portable. You can change it directly without central entities. It’s truly the most freely convertible currency.

Final thoughts on freely convertible currencies

A currency is considered freely convertible when a currency does not have any state restrictions on exchanging it with another currency. Freely convertible currency we have listed in this article can be exchanged for money into cash or into any other currency.

References

• Currency Convertibility: Advantage, Benefits and Preconditions for Capital Account Convertibility. (2014, April 26). Retrieved May 8, 2019, from Your Article Library website.