Business, Legal & Accounting Glossary
a commodity that is freely interchangeable with another in satisfying an obligation
finance and commerce Able to be substituted for something of equal value or utility; interchangeable, exchangeable, replaceable.
Fungible literally means interchangeable. Therefore fungible commodities are substitutable commodities.
Only a fungible commodity can be traded at a commodity exchange. This term is often applied to financial instruments with nearly similar specifications. For instance, futures contracts and options are considered to be fungible financial instruments. Highly fungible financial instruments carry low transaction costs since they are extremely liquid. Stocks and bearer securities belonging to the same class are considered to be fungible. So are mortgages in a loan pool. Fungible assets are those assets, which represent quantity tracked depreciable rental inventories. (Fungible goods are often sold in bulk. They are normally sold in number or by weight).
As per experts opinion, in the modern-day world, any country which wishes to build and sustain a modern market economy has to foster the accessibility of legal property rights among all citizens. This must especially hold true for marginalized sections of society. Property rights will here act as a vehicle for socio-economic empowerment and one major requirement to that end is making assets fungible.
Gold, for instance, is considered to be fungible, while wool does not enjoy the same fungibility. In the discipline of finance, the term fungibility refers to a security’s ability to easily get converted into a related security. A fungible stock allows for the exchange of shares purchased in different stock exchanges. Fungible securities are liquid and somewhat sheltered from price fluctuations is a particular exchange.
In the discipline of international relations, the term fungibility applies to the power of states. Here it is assumed that if power displays fungibility then a state is capable of transforming its economic power into military might and vice versa. International relations engage in fungibility degree between ‘soft power’ and ‘hard power’. Mathematicians like Ian Stewart argue that the concept of fungibility is also applicable to the arena of pure science.
Fungibility is different from liquidity. A good is liquid and tradable if it can be exchanged for money or another different good. A good is fungible if one example of the good is substantially equivalent to another example of the same good.
Fungibility does not imply liquidity, and liquidity does not imply fungibility. Diamonds are easily bought and sold (the trade is liquid), but individual diamonds are not interchangeable (diamonds are not fungible). Zimbabwean dollar banknotes are interchangeable in London (they are fungible there), but they are not easily traded there (they are not liquid in London).
Examples of highly fungible commodities are petroleum (gasoline), electricity, precious metals, and many currencies.
Fungibility has nothing to do with the ability to exchange one commodity for another. It has everything to do with exchanging one example of a commodity with another example of the same commodity.
In international relations, the term fungibility is usually applied to the power of states. International relations theorists who believe that power is fungible see different types of power as reinforcing each other. By way of analogy: with power as a fungible commodity, a state may translate its economic power into military power (eg. buy some tanks/military aircraft/armaments), and vice versa (sell some tanks/aircraft). A major debate in international relations is the degree of fungibility between hard power and soft power.
In legal disputes, when one party is compelled to remedy another party as the result of a ruling or adjudication, the appropriate legal remedy 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), the appropriate remedy may change. For example, a court may require specific performance as a remedy for breach of contract, instead of the more favoured remedy of monetary damages.
In Does God Play Dice? The New Mathematics of Chaos, the mathematician Ian Stewart argues that fungibility applies to science as well. The example he uses is that subatomic particle theory is fungible when studying molecules “provided it led to the same general feature of a replicable molecule.”
Another example is the concept of mass, either gravitational or inertial mass. Mass is fungible in all observationally consistent theories of gravitation. All compositions of matter fall identically in a vacuum, including binding energies.
Perhaps the ultimate example of fungibility in science is that of identical particles. In quantum mechanics, two elementary particles of identical mass, charge, and spin can be interchanged without any discernable effect. In fact, it is impossible to discern between the particles even in principle. This ‘mandatory fungibility’ leads to some surprising conclusions, such as the Pauli exclusion principle.
Johanna Drucker discusses the idea that fungibility may also exist in respect to typography and the recording of information. In her article “The Future of Writing in Terms of its Past: The New Fungibility Factor” she argues that in our new age of technology, the form that written language takes is no longer an important part of the message it conveys. This is due to the fact that the appearance of a message can be changed at the click of a mouse button.
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This glossary post was last updated: 29th April, 2020 | 8 Views.