Fungibility

In economics and law, fungibility is the property of a good or a commodity whose individual units are essentially interchangeable.[1][2] In legal terms, this affects how legal rights (such as ownership and the right to receive goods under a contract) apply to such items. Fungible things can be substituted for each other; for example, a $100 bill (note) is considered entirely equivalent to twenty $5 bills (notes), and therefore a person who borrows $100 in the form of a $100 bill can repay the money with twenty $5 bills. There is no requirement to return the same $100 bill. Non-fungible items are not substitutable in the same manner.

Goods that are fungible are treated as commodities, and markets in commodities are active and liquid because of their fungibility. For example, gold is generally fungible because its value does not depend on any specific form, whether of coins, ingots, or other states. However, a unique item such as a gold statuette would not be considered fungible with the same weight of gold in some other form. Other fungible commodities include other precious metals and grades of crude oil. The legal recognition of fungibility is limited, and even very similar items, such as new cars of the same model and specifications, are not considered fungible with each other in law.

Many financial instruments, such as shares, bonds and currencies, are also fungible.

Fungibility refers only to the equivalence and indistinguishability of each unit of a commodity or other thing with other units of the same thing, and not to the ability to easily trade it for something else.

  1. ^ Merriam-Webster. "Fungible (adjective)". Merriam-Webster Online Dictionary and Thesaurus. Merriam-Webster, Incorporated. Retrieved 22 August 2014.
  2. ^ "What is fungible? Definition and examples". Market Business News. Retrieved 2 April 2021.

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