What’s Fungibility?
Fungibility is the capacity to swap similar products or assets. Using fungible assets simplifies trade and exchange operations by ensuring equivalent value.
Understanding Fungibility
To be fungible, two items must be identical in specification and exchangeable. Specific grades of commodities, like No. 2 yellow maize, are fungible since all No. 2 yellow corn is valued the same. Fungible products include commodities, stocks, options, and dollars.
Multi-exchange-listed stocks are still fungible. Whether you bought New York or Tokyo Stock Exchange shares, they reflect the same corporate ownership. Although finance is associated with fungibility, quantum physics also has it.
Cryptocurrencies are typically fungible, although some are unique and non-transferable.
Fungibility vs. non-Fungibility
Another fungible asset is money. Since $50 bills are mutually substitutable, Person A doesn’t care if Person B repays him with another $50 bill. Person A can be happy with two $20 banknotes and one $10 bill because the total is $50.
If Person A borrows Person B’s automobile, Person B cannot return a different car, even if it is the same make and model. This is an example of non-fungibility. Ownership of automobiles is not fungible, but fuel is. Individual traits increase or deduct value from diamonds, land, and baseball cards, making them non-fungible.
Diamonds are not fungible since they have distinct cuts, hues, sizes, and grades. Real estate is never fungible. Even on a similar street, each property has distinct noise, traffic, maintenance, and perspectives of the surrounding region.
Special Considerations
Fungibility-non-fungibility lines may be narrow. Gold is usually fungible, but not always. Serial numbers or other identifying markings may make fungible objects less fungible. Numbering gold bars, collectibles, and other goods distinguishes them.
The Federal Reserve Bank of New York provides gold custody services to central banks and governments worldwide, holding gold bars in its subterranean vault. The vault weighs all gold bars precisely and checks their refiner and purity marks against the depositor’s instruction documents. The New York Fed tracks everything, and these gold deposits are not fungible since the bars placed are the ones returned.
Conclusion
- Fungibility is the capacity to replace a similar good or asset.
- Non-fungible assets include vehicles and homes.
- Using a $1 note, you can get four quarters, ten dimes, etc.
