Fungibility

In economics, fungibility is the property of a good or a commodity whose individual units are essentially interchangeable, and each of whose parts are indistinguishable from any other part. Fungible tokens can be exchanged or replaced; for example, a $100 bill (note) can easily be exchanged for twenty$5 bills (notes). In contrast, non-fungible tokens cannot be exchanged in the same manner. For example, gold is fungible because its value does not depend on any specific form, whether of coins, ingots, or other states. However, a unique item such as a gold statue by a famous artist would not be considered fungible. In short, a thing is fungible when all equivalent amounts of that thing are interchangeable. Fungible commodities include sweet crude oil, company shares, bonds, other precious metals, and currencies. Fungibility refers only to the equivalence and indistinguishability of each unit of a commodity with other units of the same commodity, and not to the exchange of one commodity for another. The word fungibility comes from the Latin fungibilis, from the verb fungī, meaning "to perform", via phrases such as fungi vice, meaning "serve in place of". It is related to words such as "function" and "defunct". 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, place, etc. Notably, money is fungible: one US $10 banknote is interchangeable with any other genuine banknote like it. It is also interchangeable with two fives, ten ones, 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.