Convertibility
From Wikipedia, the free encyclopedia
Convertibility is the quality of paper money which entitles the holder to redeem it on demand.
- Under the gold standard, banknotes were payable in gold coins. In the same way under the silver standard, banknotes were payable in silver coins, and under a bi-metallic standard, payable in either gold or silver coins, at the option of the debtor (the issuing bank).
- Under the gold exchange standard, for example the Bretton Woods Institutions, banks of issue were obliged to redeem their currencies in gold bullion, or in United States Dollars- which in turn were redeemable in gold bullion at a rate of $35/troy ounce. The United States eventually abandoned the gold standard and thus bullion convertibility in 1971.
It can also refer to the convertibility of one currency into another. Some countries pass laws restricting the legal exchange rates or requiring permits to exchange more than a certain amount. Thus, those countries' currencies are not fully convertible.
