What is inconvertible currency’
A nonconvertible currency, also known as non-convertible Currency or sometimes blocked currency is the Currency can not be exchanged for another currency or other legal for a number of reasons. They can include currency regulation, government restrictions, physical barriers, political sanctions or extremely high volatility.
What liquidity means that investors can buy, sell and exchange currency because the regulatory body or another country decided paper Currency or coin issued by a particular state is unstable and therefore a risky investment.
While the term most often refers to money that cannot be converted on the foreign exchange market, in some cases, this can be a Currency that is only allowed to be converted in very limited quantities.
Non-convertible money can be contrasted with the convertible currencythat is highly liquid, with few government restrictions, and can often be a good investment if the country is experiencing strong economic growth.
Breaking down the ‘inconvertible currency’
Inconvertible currency, when labeled as such, allows regulators to protect investors from currency risks and an unsafe investment. An example of when this might come into play if a particular developing country, for example, was the experience of rapid onset of hyperinflation, where the currency purchasing power quickly deteriorates.
In this case, regulators can declare the currency to be stable, preventing investors to transfer funds in an unstable currency and protecting them from loss.
During hyperinflation is usually the most common reason for a Currency is irreversible, sometimes there are political motives in the game, for example, in a Communist country that issues non-convertible money in order to protect its citizens from the influence of capitalism.
The need to ‘denote a closed currency’
Non-convertible currency, by its nature, is only used in the domestic market and are not traded on the Forex market. Where the trading of such currencies does occur, it is usually only on the black market.
But despite the fact that non-convertible designation is designed to protect investors, they are also important as a mechanism of protection of national economies. Non-convertible currency can be a valuable protective tool that for developing economies, which may fluctuate in the markets. Blocked currency may help to protect against capital outflows that could damage the economy.
But even the strong economy of inconvertibility to use as a tool. Traditionally, the Chinese yuan is non-convertible currency, for example, although China recently working towards full convertibility for investors.
You can invest in non-convertible currencies. One Fund, for example, says he receives them, taking part in NDF contracts in Asian currencies such as the Renminbi, Indian rupee, Korean won, Malaysian ringgit, and others.