Freely Convertible Currencies

A fully convertible currency, or freely convertible currency, is a currency that doesn't have any government restrictions on currency exchange. 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 constitutes as a freely convertible currency. Different institutions have varying criteria.

Advantages of freely convertible currencies

Freely convertible currencies are good news, in that they are very inexpensive to buy and sell. If your bank is charging you 4% in spread costs (the difference between the buy and sell rates), you can easily find a specialized broker who will undercut that by at least 50%.

The Euro is a prime example of a fully convertible currency

Every year, the IMF engages in Article IV negotiations with central banks and governments around the world to determine, based on Article VIII, whether the currency is convertible or not. In addition to that, some currencies may be deregulated by the central bank and guaranteed convertible by the IMF, yet no global banking institutions will 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 a fully convertible currency

Australian Dollar
Bahrain Dinar
Canadian Dollar
Danish Kroner
Euro
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

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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 on the black market.

Partial restrictions

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 add up to 10% at the €2000 bracket.

Non-deliverable forward

A non-deliverable forward (NDF) contract on non-convertible currencies can be used to attempt to mitigate the currency's volatility risk.

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. 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. That is, for transactions outside of mainland China, such as in Hong Kong and Singapore. If the transaction involves a party inside China, the regulations set by the Chinese central bank and SAFE, the Chinese Safe Administration of Foreign Exchange, apply.

Chinese Yuan (CNY) is not fully convertible

So, there's still a lot of regulation and restrictions attached to moving CNH from off-shore to on-shore mainland China. Due to the recent economic problems in China, the Central Bank has increased the restrictions. This also means that transferring money into China has become 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?

Virtual Bank Account: a workaround 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. Ultimately, these high spread costs shrink the margins of 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 subsequently forward the money to your local bank account for a 1% fee.

More information

Wikipedia: Currency
Wikipedia: Convertibility
IMF surveillance, with more information about Article IV consultations
IMF committee on balance of payments statistics (PDF)

How to open a bank account in Europe

We have a few guides to guide you through the process of opening a bank account in multiple European countries and explaining why a virtual bank account with B2B Pay may be a better alternative if you are transferring money outside of Europe and taking advantage of a better rate.

How to open a bank account overseas

We have a few guides to guide you through the process of opening a bank account in multiple countries all over the world and explaining why a virtual bank account with B2B Pay may be a better alternative if you are transferring money outside of Europe and taking advantage of a better rate.