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In economics and law, fungibility is the property of a good or a commodity whose individual units are essentially interchangeable. In legal terms, this affects how legal rights (such as ownership and the right to receive goods under a contract) apply to such items. Fungible things can be substituted for each other; for example, a $100 bill (note) is considered entirely equivalent to twenty $5 bills (notes), and therefore a person who borrows $100 in the form of a $100 bill can repay the money with twenty $5 bills. There is no requirement to return the same $100 bill. Non-fungible items are not substitutable in the same manner.
Goods that are fungible are treated as commodities, and markets in commodities are active and liquid because of their fungibility. For example, gold is generally fungible because its value does not depend on any specific form, whether of coins, ingots, or other states. However, a unique item such as a gold statuette would not be considered fungible with the same weight of gold in some other form. Other fungible commodities include other precious metals and grades of crude oil. The legal recognition of fungibility is limited, and even very similar items, such as new cars of the same model and specifications, are not considered fungible with each other in law.
Many financial instruments, such as shares, bonds and currencies, are also fungible.
Fungibility refers only to the equivalence and indistinguishability of each unit of a commodity or other thing with other units of the same thing, and not to the ability to easily trade it for something else.
Etymology
The word fungibility comes from the Latin fungibilis, from the verb fungī, meaning "to perform", via phrases such as fungi vice, meaning "serve in place of". It is related to words such as "function" and "defunct".
Use
Finance
Fungibility is different from liquidity. A good is said to be liquid if it can be easily exchanged for money or another 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, place, etc.
Notably, money is fungible: one US $10 banknote is interchangeable with any other genuine banknote like it. It is also interchangeable with two fives, ten ones, or any other combination of banknotes and coins adding up to $10.
On the other hand, diamonds and other gems are not perfectly fungible because their varying cuts, colors, grades, and sizes make it difficult to find several diamonds expected to have the same value. Packaged products on a retail shelf may be considered fungible if they are of the same type and equivalent in function and form. Customers and clerks can interchange packages freely until purchase, and sometimes afterward. After one opens the package and uses the product, however, it is usually considered unique and no longer interchangeable with unopened packages outside of exceptional circumstances, such as a return or exchange.
The traditional definition of a security, which includes shares, bonds and similar, is a "fungible, negotiable instrument", where "instrument" refers to its status as a legal document and "negotiable" means that the owner can transfer it with good title, even though it itself may have had defective title.
Cryptocurrency
Cryptocurrencies are usually considered to be fungible assets, where one coin is equivalent to another. However, after a major breach in Japanese exchange Coincheck, token developers for cryptocurrency NEM added a special flag to hacked coins to indicate they are not to be traded or used.
Non-fungible tokens (NFTs) are similar to units of blockchain currency, except that they are connected to unique digital files, so that individual tokens can be considered to have a meaningful distinction from others. This distinguishability allows NFTs to have unique use cases, such as their use as blockchain gaming assets, digital collectibles, to indicating ownership of fine art or real assets, used to facilitate decentralized finance loans, and to earn reward tokens.
Tasking
Fungibility has been used to describe certain types of tasks that can be broken down into interchangeable pieces that are easily parallelized and are not interdependent on the other pieces. For example: If a worker can hand dig one meter of a ditch in a day, and a ten-meter ditch needs to be dug, that worker can either be given ten days to complete the entire project or nine more workers can be hired for a single day. Each worker can complete their piece of the project without interfering with the other workers, and more importantly, each worker is not dependent on the results of any of the other workers to complete their share of the total project.
On the other hand, non-fungible tasks tend to be highly serial in nature and require the completion of earlier steps before later steps can even be started. As an example of a serial task that is not fungible, suppose there was a group of nine newly pregnant women. After one month, these women would have experienced a total of nine months of pregnancy, but a complete baby would not have been formed.
Quantum physics
Oxford University theoretical physicist David Deutsch has adopted the term "fungible" to describe the physical nature of quantum particles and universes within the quantum multiverse, 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.
Law
United States
This section may require cleanup to meet Wikipedia's quality standards. The specific problem is: section needed for use of Fungible in context of evidence. (October 2019) |
In legal disputes in the United States, 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 (an equitable remedy) as a remedy for breach of contract, instead of the more favored remedy of monetary damages.
Belgium
Belgium has adopted fungibility for its domestic central securities depository CIK (later Euroclear Belgium), which was set up in 1967–1968. According to royal decree No. 62, issued on 10 November 1967, depositors of fungible securities have the rights of co-ownership. This change was fundamental to the development of Euroclear, by then beginning to process Eurobonds and build systems.
See also
- Currency
- Substitute good, re currency a currency substitution might be dollarization.
- Interchangeable parts
References
- Merriam-Webster. "Fungible (adjective)". Merriam-Webster Online Dictionary and Thesaurus. Merriam-Webster, Incorporated. Retrieved 22 August 2014.
- "What is fungible? Definition and examples". Market Business News. Retrieved 2 April 2021.
- Etymonline.com. "fungible (adj.)". Online Etymology Dictionary. Retrieved 12 August 2017.
- Milton, Adam (15 February 2017). "Fungible, Trading Term Definition". The Balance. Retrieved 15 November 2015.
- Alpeyev, Pavel (2018-01-29). "How to Launder $500 Million in Digital Currency". Bloomberg.
- "Britannica Money". www.britannica.com. Retrieved 2024-02-12.
- "10 Popular NFT Use Cases | Built In". builtin.com. Retrieved 2024-02-12.
- "The flawed multiverse – Physics World". Physics World. 2011-09-22. Retrieved 2018-09-27.
- S. Williston, The Law of Contracts § 1338 (1920); Farnsworth, E. Allan (1970). "Legal Remedies for Breach of Contract". Columbia Law Review. 70 (7): 1145–1216. doi:10.2307/1121184. JSTOR 1121184.
- Bunge Corp. v. Recker, U.S. Ct. of App., 8th Cir., 1975; Restatement (Second) of Contracts Ch 16. introductory note (1981)
- Norman, Peter (February 2008), Plumbers and Visionaries, Chichester: John Wiley & Sons, p. 12, ISBN 978-0-470-72425-5
Further reading
- Bartram, Söhnke M.; Fehle, Frank R. (March 2007). "Competition without Fungibility: Evidence from Alternative Market Structures for Derivatives". Journal of Banking and Finance. 31 (3): 659–677. doi:10.1016/j.jbankfin.2006.02.004. S2CID 55973719. SSRN 311880.
This article needs additional citations for verification Please help improve this article by adding citations to reliable sources Unsourced material may be challenged and removed Find sources Fungibility news newspapers books scholar JSTOR June 2012 Learn how and when to remove this message In economics and law fungibility is the property of a good or a commodity whose individual units are essentially interchangeable In legal terms this affects how legal rights such as ownership and the right to receive goods under a contract apply to such items Fungible things can be substituted for each other for example a 100 bill note is considered entirely equivalent to twenty 5 bills notes and therefore a person who borrows 100 in the form of a 100 bill can repay the money with twenty 5 bills There is no requirement to return the same 100 bill Non fungible items are not substitutable in the same manner Goods that are fungible are treated as commodities and markets in commodities are active and liquid because of their fungibility For example gold is generally fungible because its value does not depend on any specific form whether of coins ingots or other states However a unique item such as a gold statuette would not be considered fungible with the same weight of gold in some other form Other fungible commodities include other precious metals and grades of crude oil The legal recognition of fungibility is limited and even very similar items such as new cars of the same model and specifications are not considered fungible with each other in law Many financial instruments such as shares bonds and currencies are also fungible Fungibility refers only to the equivalence and indistinguishability of each unit of a commodity or other thing with other units of the same thing and not to the ability to easily trade it for something else EtymologyThe word fungibility comes from the Latin fungibilis from the verb fungi meaning to perform via phrases such as fungi vice meaning serve in place of It is related to words such as function and defunct UseLook up fungible in Wiktionary the free dictionary Finance Fungibility is different from liquidity A good is said to be liquid if it can be easily exchanged for money or another 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 place etc Notably money is fungible one US 10 banknote is interchangeable with any other genuine banknote like it It is also interchangeable with two fives ten ones or any other combination of banknotes and coins adding up to 10 On the other hand diamonds and other gems are not perfectly fungible because their varying cuts colors grades and sizes make it difficult to find several diamonds expected to have the same value Packaged products on a retail shelf may be considered fungible if they are of the same type and equivalent in function and form Customers and clerks can interchange packages freely until purchase and sometimes afterward After one opens the package and uses the product however it is usually considered unique and no longer interchangeable with unopened packages outside of exceptional circumstances such as a return or exchange The traditional definition of a security which includes shares bonds and similar is a fungible negotiable instrument where instrument refers to its status as a legal document and negotiable means that the owner can transfer it with good title even though it itself may have had defective title Cryptocurrency Cryptocurrencies are usually considered to be fungible assets where one coin is equivalent to another However after a major breach in Japanese exchange Coincheck token developers for cryptocurrency NEM added a special flag to hacked coins to indicate they are not to be traded or used Non fungible tokens NFTs are similar to units of blockchain currency except that they are connected to unique digital files so that individual tokens can be considered to have a meaningful distinction from others This distinguishability allows NFTs to have unique use cases such as their use as blockchain gaming assets digital collectibles to indicating ownership of fine art or real assets used to facilitate decentralized finance loans and to earn reward tokens Tasking Fungibility has been used to describe certain types of tasks that can be broken down into interchangeable pieces that are easily parallelized and are not interdependent on the other pieces For example If a worker can hand dig one meter of a ditch in a day and a ten meter ditch needs to be dug that worker can either be given ten days to complete the entire project or nine more workers can be hired for a single day Each worker can complete their piece of the project without interfering with the other workers and more importantly each worker is not dependent on the results of any of the other workers to complete their share of the total project On the other hand non fungible tasks tend to be highly serial in nature and require the completion of earlier steps before later steps can even be started As an example of a serial task that is not fungible suppose there was a group of nine newly pregnant women After one month these women would have experienced a total of nine months of pregnancy but a complete baby would not have been formed Quantum physics Oxford University theoretical physicist David Deutsch has adopted the term fungible to describe the physical nature of quantum particles and universes within the quantum multiverse 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 Law United States This section may require cleanup to meet Wikipedia s quality standards The specific problem is section needed for use of Fungible in context of evidence Please help improve this section if you can October 2019 Learn how and when to remove this message In legal disputes in the United States 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 an equitable remedy as a remedy for breach of contract instead of the more favored remedy of monetary damages Belgium Belgium has adopted fungibility for its domestic central securities depository CIK later Euroclear Belgium which was set up in 1967 1968 According to royal decree No 62 issued on 10 November 1967 depositors of fungible securities have the rights of co ownership This change was fundamental to the development of Euroclear by then beginning to process Eurobonds and build systems See alsoCurrency Substitute good re currency a currency substitution might be dollarization Interchangeable partsReferencesMerriam Webster Fungible adjective Merriam Webster Online Dictionary and Thesaurus Merriam Webster Incorporated Retrieved 22 August 2014 What is fungible Definition and examples Market Business News Retrieved 2 April 2021 Etymonline com fungible adj Online Etymology Dictionary Retrieved 12 August 2017 Milton Adam 15 February 2017 Fungible Trading Term Definition The Balance Retrieved 15 November 2015 Alpeyev Pavel 2018 01 29 How to Launder 500 Million in Digital Currency Bloomberg Britannica Money www britannica com Retrieved 2024 02 12 10 Popular NFT Use Cases Built In builtin com Retrieved 2024 02 12 The flawed multiverse Physics World Physics World 2011 09 22 Retrieved 2018 09 27 S Williston The Law of Contracts 1338 1920 Farnsworth E Allan 1970 Legal Remedies for Breach of Contract Columbia Law Review 70 7 1145 1216 doi 10 2307 1121184 JSTOR 1121184 Bunge Corp v Recker U S Ct of App 8th Cir 1975 Restatement Second of Contracts Ch 16 introductory note 1981 Norman Peter February 2008 Plumbers and Visionaries Chichester John Wiley amp Sons p 12 ISBN 978 0 470 72425 5Further readingBartram Sohnke M Fehle Frank R March 2007 Competition without Fungibility Evidence from Alternative Market Structures for Derivatives Journal of Banking and Finance 31 3 659 677 doi 10 1016 j jbankfin 2006 02 004 S2CID 55973719 SSRN 311880
