Fungibility is the ability of a good or asset to be interchanged with other individual goods or assets of the same type. The concept of ‘fungibility’ lies at the heart of what it is for one asset to be “equivalent to” another asset.
By way of an example, one five pound note is entirely fungible with another five pound note – in the sense that the holder does not really care which note he/she owns. Similarly, the holder probably wouldn’t care if he/she was paid five pound coins instead of a five pound note (the issue of having too much change in your pocket put to one side). Again, the two are, basically, fungible.
In a similar vein, an individual who owned shares in Amazon wouldn’t care if he/she were the owner of share number 100 or share number 1,000 (on the assumption that all of the shares were of the same class and carried the same rights). Why? Because they are fungible.
Fungibility can also exist with respect to debt securities. On the assumption that two debt securities come from the same tranche and carry the same rights, the holder should really be agnostic as to which one he/she owns. Again, they are fungible.
Of course, fungibility does not exist with respect to all assets. To give a simple example, shares of Amazon are NOT fungible with shares of Marks & Spencers. The two represent very different risks. They aren’t interchangeable.Contact Us