Fungible

Fungible describes something that is interchangeable and replaceable with another identical item. It means that one unit of the good or asset is essentially the same as another. This quality is crucial in economics and finance, as it allows for easy trading and standardization. The term implies uniformity and a lack of inherent differences between individual units, making them easily substituted without impacting value or function. Fungibility often applies to commodities, currencies, and certain types of financial instruments like shares. It's the core concept allowing for efficient markets where prices are determined by supply and demand, irrespective of the specific unit involved.

Fungible meaning with examples

• A farmer can sell 100 bushels of fungible wheat to a wholesaler because each bushel is identical in quality and can be exchanged without loss. This allows for the commodity market to function efficiently, with standardized grades driving the trading prices.
• When you deposit $100 in your bank account, the bank can use that specific bill or any other fungible $100 bill to cover your needs. The actual notes are not relevant because the value remains.
• If a company issues shares to the public, each share is fungible, meaning any investor can buy or sell one share or more, and the specific physical certificate doesn't matter.
• Most cryptocurrencies such as Bitcoin are considered fungible since one Bitcoin can be exchanged for another Bitcoin of equal value without differentiating features or quality. This is crucial for payment transfers.
• The contract stipulated that the raw materials must be fungible to facilitate their mixing and matching. Because each unit was virtually indistinguishable, it simplified accounting and management.