Refers to how easily a currency can be exchanged for gold or another currency. Currency convertibility is important for international trade because people will be less willing to accept a currency as payment if they will be unable to convert it to their own currency.
For example,
convertibility of Taka means that those who have foreign exchange (e.g. US
dollars, Pound Sterlings etc.) can get them converted into Taka and vice-versa
at the market determined rate of exchange. Under convertibility of a currency
there are authorised dealers of foreign exchange which constitute foreign
exchange market.
Advantages
of Currency Convertibility:
1. Encouragement to exports:
2. Encouragement to import substitution:
3. Incentive to send remittances from abroad:
4. A self – balancing mechanism:
5. Specialisation in accordance with comparative advantage:
6. Integration of World
Economy: