A fully convertible currency, or freely convertible currency, doesn't have any government restrictions on trading the currency for another currency. Obvious examples of fully convertible currencies are the US dollar and the Euro. In total, there are around 17 fully convertible currencies. There is no precise, straightforward definition of what classifies as a freely convertible currency because it varies across institutions.
Advantages of freely convertible currencies
The good thing about freely convertible currencies is that they are very inexpensive to buy and sell. If your bank is charging you 3-4% in spread costs spread costs (the difference in buy and sell rate), then you can find plenty of specialist brokers which will easily undercut that by at least 50% if not lower, depending on the size of money you want to convert and send.
Every year, the IMF has Article IV negotiations with central banks and governments around the world to conclude, based on Article VIII, whether the currency is convertible or not. To make things more complex, some currencies may be deregulated by the central bank and considered convertible by the IMF, but no global banking institutions want to get involved with it (e.g. the Columbian peso).
Freely convertible currency list
This is not a canonical list, since various institutions have different definitions of fully convertible currency
- Australian Dollar
- Bahrain Dinar
- Canadian Dollar
- Danish Kroner
- Hong Kong Dollar
- Kenya Shilling
- Kuwait Dinar
- New Zealand Dollar
- Norwegian Kroner
- Pound Sterling
- Singapore Dollar
- South African Rand
- Saudi Arabian Riyal
- Swedish Kroner
- Swiss Franc
- UAE Dirham
- US Dollar
Restrictions on currency exchange
Some countries completely forbid exchanging their currencies beyond a specific amount (e.g. the Cuban Peso and the North Korean Won). The only place to exchange these currencies outside of these restrictions is the black market.
The Indian rupee is a partially convertible currency. India has put restrictions on trading the rupee. This usually leads to bad exchange rates when transferring money in and out of India. In our experience, these (mostly hidden) fees can be up to 10% for amounts around €2000.
A non-deliverable forward (NDF) contract on non-convertible currencies can be used to be able to reduce currency volatility risk for currencies that can't be traded.
List of non-convertible currencies with an NDF market
- ARS Argentine peso
- BRL Brazilian real
- CLP Chilean peso
- CNY Chinese renminbi
- COP Colombian peso
- EGP Egyptian pound
- GTQ Guatemalan quetzal
- IDR Indonesian rupiah
- INR Indian rupee
- KRW South Korean won
- KZT Kazakhstani tenge
- MYR Malaysian ringgit
- PEN Peruvian nuevo sol
- PHP Philippine peso
- TWD Taiwan dollar
- UYU Uruguayan peso
- VEB Venezuelan bolívar
- VND Vietnamese đồng
Read more about NDF on Wikipedia
Is the Chinese Yuan fully convertible?
There's no clear yes/no answer to this as in fact, there are two yuans. Besides the widely known CNY there is the off-shore CNH. CNH is not regulated and is de facto fully convertible, at least for transactions outside of mainland China, most predominantly in Hong Kong and Singapore. As soon as it crosses the borders to China the same regulations set by the Chinese central bank and SAFE, the Chinese Safe Administration of Foreign Exchange, apply.
So, there's still a lot of regulation and accompanying restrictions around moving CNH from off-shore to on-shore mainland China. Due to the recent economic problems in China, the Central Bank has put some more restrictions. This also means that transferring money into China becomes more expensive and cumbersome for banks and companies.
We expect that full convertibility of the Chinese Yuan will be off the table until at least 2018.
More info about CNY and CNH
Free Virtual Bank Account for Exporters to Europe
When your business is exporting to Europe, the contracts and invoices with your customers are most often set in Euros. The Euro is freely convertible, but during the payment process to your local bank you're likely to get an exchange rate between 3 and 6% from the mid-market rate. These spread costs are always taken by the exporter. With B2B Pay, you can get a free virtual bank account in Europe which will allow your customers to make a free SEPA payment. B2B Pay will consequently send the money to your local bank account for a fee of 1%.