Fungibility

Fungibility

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Encyclopedia
Fungibility is the property of a good
Good (economics and accounting)
In economics, a good is something that is intended to satisfy some wants or needs of a consumer and thus has economic utility. It is normally used in the plural form—goods—to denote tangible commodities such as products and materials....

 or a commodity
Commodity
In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services....

 whose individual units are capable of mutual substitution, such as crude oil, wheat
Wheat
Wheat is a cereal grain, originally from the Levant region of the Near East, but now cultivated worldwide. In 2007 world production of wheat was 607 million tons, making it the third most-produced cereal after maize and rice...

, precious metal
Precious metal
A precious metal is a rare, naturally occurring metallic chemical element of high economic value.Chemically, the precious metals are less reactive than most elements, have high lustre, are softer or more ductile, and have higher melting points than other metals...

s or currencies. For example, if someone lends another person a $10 bill, it does not matter if they are given back the same $10 bill or a different one, since currency is fungible; if someone lends another person their car, however, they would not expect to be given back a different car, even of the same make and model, as cars are not fungible.

It refers only to the equivalence of each unit of a commodity with other units of the same commodity. Fungibility does not describe or relate to any exchange of one commodity for some other, different commodity.

Etymology


The word comes from Latin fungibilis from fungi, meaning "to perform", related to "function" and "defunct".

Fungibility versus liquidity


Fungibility is different from liquidity
Market liquidity
In business, economics or investment, market liquidity is an asset's ability to be sold without causing a significant movement in the price and with minimum loss of value...

. A good is liquid if it can be easily exchanged for money
Money
Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...

 or another different good. A good is fungible if one unit of the good is substantially equivalent to another unit of the same good of the same quality at the same time and place.

Examples:
  • Cash is fungible: one US$
    United States dollar
    The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....

    10 bank note is interchangeable with another.
  • Crude oil is fungible: a barrel of West Texas Intermediate
    West Texas Intermediate
    West Texas Intermediate , also known as Texas light sweet, is a grade of crude oil used as a benchmark in oil pricing. It is a light and sweet crude oil...

     crude oil is fungible (direct exchange) with another barrel of the same type and grade of crude oil.
  • Different issues of a government bond (maybe issued at different times) are fungible with one another if they carry precisely the same rights and any of them is equally acceptable in settlement of a trade.
  • Diamond
    Diamond
    In mineralogy, diamond is an allotrope of carbon, where the carbon atoms are arranged in a variation of the face-centered cubic crystal structure called a diamond lattice. Diamond is less stable than graphite, but the conversion rate from diamond to graphite is negligible at ambient conditions...

    s are not fungible because diamonds' varying cuts, colors, grades, and sizes make it difficult to find many diamonds with the same cut, color, grade, and size.


Fungibility does not imply liquidity, and liquidity does not imply fungibility. Diamonds can be readily bought and sold (the trade is liquid) but individual diamonds, being unique, are not interchangeable (diamonds are not fungible). Indian rupee
Indian rupee
The Indian rupee is the official currency of the Republic of India. The issuance of the currency is controlled by the Reserve Bank of India....

 bank notes are mutually interchangeable in London (they are fungible there) but they are not easily traded there (they cannot be spent in London). In contrast to diamonds, gold coins of the same grade and weight are fungible, as well as liquid.

Fungibility in law


In legal disputes, when one party is compelled to remedy another party as the result of a ruling or adjudication, the appropriate legal remedy
Legal remedy
A legal remedy is the means with which a court of law, usually in the exercise of civil law jurisdiction, enforces a right, imposes a penalty, or makes some other court order to impose its will....

 may depend on the fungibility of the underlying right, obligation or property interest that is intended to be restored. Depending on whether the interests of the aggrieved party are fungible (a determination made by the trier of fact
Trier of fact
A trier of fact is a person, or group of persons, who determines facts in a legal proceeding, usually a trial. To determine a fact is to decide, from the evidence, whether something existed or some event occurred.-Juries:...

) the appropriate remedy may change. For example, a court may require specific performance
Specific performance
Specific performance is an order of a court which requires a party to perform a specific act, usually what is stated in a contract. It is an alternative to award/ for awarding damages, and is classed as an equitable remedy commonly used in the form of injunctive relief concerning confidential...

 (an equitable remedy
Equitable remedy
Equitable remedies are judicial remedies developed and granted by courts of equity, as opposed to courts of common law. Equitable remedies were granted by the Court of Chancery in England, and remain available today in most common law jurisdictions. In many jurisdictions, legal and equitable...

) as a remedy for breach of contract, instead of the more favored remedy of monetary damages.

Other Uses


Oxford theoretical physicist David Deutsch
David Deutsch
David Elieser Deutsch, FRS is an Israeli-British physicist at the University of Oxford. He is a non-stipendiary Visiting Professor in the Department of Atomic and Laser Physics at the Centre for Quantum Computation in the Clarendon Laboratory of the University of Oxford...

 has adopted the economic term fungible to describe the physical nature of quantum particles and universes within the quantum multiverse
Many-worlds interpretation
The many-worlds interpretation is an interpretation of quantum mechanics that asserts the objective reality of the universal wavefunction, but denies the actuality of wavefunction collapse. Many-worlds implies that all possible alternative histories and futures are real, each representing an...

, where, by virtue of being identical in all respects, different particles chaotically divide or combine as a result of physical interactions from a common fungible fund in superposition
Quantum superposition
Quantum superposition is a fundamental principle of quantum mechanics. It holds that a physical system exists in all its particular, theoretically possible states simultaneously; but, when measured, it gives a result corresponding to only one of the possible configurations.Mathematically, it...

.

In his 2005 book, The World Is Flat
The World Is Flat
The World Is Flat: A Brief History of the Twenty-First Century is an international bestselling book by Thomas Friedman that analyzes globalization, primarily in the early 21st century. The title is a metaphor for viewing the world as a level playing field in terms of commerce, where all competitors...

, Thomas Friedman
Thomas Friedman
Thomas Lauren Friedman is an American journalist, columnist and author. He writes a twice-weekly column for The New York Times. He has written extensively on foreign affairs including global trade, the Middle East, and environmental issues and has won the Pulitzer Prize three times.-Personal...

discusses the fungibility of jobs that involve digitizable information that can be off-shored to another country. "You do not want a fungible job," he maintains.