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Inconvertible currency

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Inconvertible currency
A banking system in which only a fraction of bank deposits are backed by actual Cash-on-hand and are available for withdrawal.
    
This is done to expand the economy by freeing up capital that can be loaned out to other parties. Most countries operate under this type of system.
    
Many U.S. banks were forced to shut down during the Great Depression because so many people attempted to withdraw assets at the same time. Today there are many safeguards in place to prevent such an instance from occurring again, but the fractional-reserve banking system remains in place.
    
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.
    
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.
Posted by  Privatebanking.com
 
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