Capital Account Convertibility and Current Account Convertibility

In this post, you will learn about the capital account convertibility and the current account convertibility.

Capital Account Convertibility

You must understand that it means the choice to change the local monetary assets into foreign assets and vice versa at rates of exchange determined by the markets. It talks about to the removal of the restraints on international flows on a country’s capital account, allowing full currency convertibility and opening of the monetary system. Capital account convertibility is measured to be one of the main types of a developed economy. It supports attract foreign investment. At the same time, capital account convertibility makes it easier for national companies to tap international markets. It is sometimes referred to as Capital Asset Liberation.

Current Account Convertibility

It is essential to keep in mind that current account convertibility lets free flow for all-purpose other than for capital purpose such as investment and loans. In other words, it permit inhabitants to mark and obtain trade-related expenditures receive dollars (or any other foreign currency) for export of goods and services and pay dollars for import of goods and services, make various remittance, access foreign currency for travel, studies abroad, medical treatment and gifts, etc.

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