DEFINITION of 'Inconvertible Currency'

A situation where one currency cannot be exchanged for another currency because of foreign exchange regulations or physical barriers. Inconvertible currencies may be restricted from trade due to extremely high volatility or political sanctions.

BREAKING DOWN 'Inconvertible Currency'

Labeling a currency as inconvertible allows regulators to protect investors from storing funds in an unsafe investment. For example, if a nation were to begin experiencing hyperinflation, where the value of a unit of currency rapidly depreciates, its currency could be deemed inconvertible. This would prevent investors from converting funds into the unstable currency.

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