Fungibility

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 and place.

Notably, money is fungible: one US $10 banknote is interchangeable with any other genuine banknote like it.[4] It is also interchangeable with two $5s, ten $1s, 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.

Fungibility does not imply liquidity, and vice versa. Diamonds, for example, can be readily bought and sold, as the trade is liquid, but individual diamonds, being unique, are not interchangeable. Therefore, diamonds are not fungible. Chinese Yuan RMBs, on the other hand, are mutually interchangeable, and therefore fungible, in London, but they are not easily traded there because they cannot be spent in London except at currency exchange services.

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.[5]

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 1 meter of ditch in a day, and a 10-meter ditch needs to be dug, either that worker can be given 10 days to complete the entire project, or 9 additional workers can be hired for the project to be completed in a single day. Each worker can complete his 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 his share of the total project (this would contrast with the digging of a 10-meter-deep hole).

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.

In his 2005 book, The World Is Flat, Thomas Friedman discusses the fungibility of jobs that involve digitizable information that can be off-shored to another country.

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.[6]

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.[7] 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.[8]

Fungibility is also important within the context of product liability. If a plaintiff is injured by a fungible product but is unable through no fault of his own to identify the manufacturer of the product that actually injured him, jurisdictions that follow the doctrine of market share liability can shift the burden of disproving liability to all manufacturers of that product. If the defendants fail to rebut the presumption of liability, they will be liable pro rata based on their market share during the relevant period.

Belgium has adopted fungibility for its domestic central securities depository, CIK (Euroclear), 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.[9]