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Currency Convertibility – A Unit For Exchange Among Global Countries

Currency Convertibility – A Unit For Exchange Among Global Countries

Currency, as is defined, is a unit for exchange among global countries and, it facilitates the transferring of goods and services. The rate is determined based on certain criteria, which establish the day-to-day exchange rate. It is the right of the currency holder to exchange it with the currency of his/her choice, at the established exchange rate. The external, internal, current account, capital account convertibility are the most common types of currency convertibility.

The internal and external convertibility combined together forms the total convertibility of the currency. The external convertibility is associated with non-residents, who freely exchange assets and investments within official rates, for exchanging currency. The external convertibility is limited convertibility. The internal convertibility has no restrictions in transferring the currency to non-residents for any purpose. This provides the ability to exchange currency into foreign currency and hold it.

The standard was established, the gold standard, which was acknowledged in terms of gold value. The gold standard helped to develop a framework, which provides a link of all currencies at fixed exchange rates. This linking system provides a base for the international trade and business using international monetary fund. The characteristics of gold such as storage, convenience and portability make it standard commodity, and it is internationally accepted.

The gold, being very costly, is hard to produce very quickly. Therefore, it is accepted as gold exchange standard. The international system has invited and asked to nominate their currency, a value based on the amount of gold, the country possesses. This provided a base for linking the currencies of all countries around the world.

The currency convertibility is one of the salient types of currency convertibility, which assist the countries to achieve the economic objectives by utilizing these methods. The provision of current account convertibility is fundamental for the investments, trades, business and transfers. The developed procedures pre-announcements, by-products and front loading approach are adapted by developing countries.

The capital account convertibility facilitates the conversion of local economic assets to overseas assets. The rate of exchange, which is already determined, gives an alternative and liberty in converting these assets.

The ecurrency is one of the new technologies, which is being used to transfer currencies. This method adheres to all the rules and set of laws associated with the general procedures of currency convertibility. The modern technology of internet has facilitated the worldwide transferring of money. These transactions could be for business, industry, family or friends. Just one transaction pays out to many at a time. It is real-time transactions online either for payments, sales etc. The bill payments have been made easy, one-time or recurring payments can be scheduled.

The types of currency convertibility facilitate the transfer of funds for various purposes all over the world.


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