CONVERTIBILITY

The right to exchange one currency for another. Resident and nonresident holders can exchange a fully CONVERTIBLE CURRENCY at will, without seeking permission from government authorities; a NONCONVERTIBLE CURRENCY requires permission prior to exchange. Some currencies have restricted convertibility, where nonresidents may be able to exchange freely but residents may need to gain prior approval, or holders may be able to convert freely for CURRENT ACCOUNT purposes such as trade, but not for CAPITAL ACCOUNT purposes such as LOANS or ASSET acquisition. See also RISK, RESERVE CURRENCY.

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