Fungibility is a term used to describe the ability of an asset or good to be exchanged easily as an equivalent of its kind. The concept of fungibility pertains to any type of object, from money to securities and commodities. Put simply, any asset or good that is deemed to be fungible can be swapped for the same kind of item with equivalent value.

Money serves as the most common example of a fungible asset, as various denominations of notes and coins can be exchanged for other forms of the same currency. For instance, one U.S. dollar can be exchanged for four quarters or ten dimes, making U.S. dollars interchangeable and thereby fungible.

In the financial world, having fungible assets is essential. Without being able to readily convert assets from one form to another, markets can become unstable. In the case of commodities trading, for instance, traders need to be able to buy and sell different kinds of commodities without the worry of having the value of their asset fluctuate due to differences in quality or grade.

Fungibility is not just a well-known concept in the finance world, but also in legal frameworks. Under copyright laws, for example, companies must make sure products are interchangeable, meaning if a customer chooses to purchase a product from another company when their original company is sold out, the product will be equivalent in terms of quality.

Without the concept of fungibility, many major exchanges in the financial and legal worlds could not function today. From stocks to commodities to legal documents, items must be exchanged without worry of price or quality differences. Fungibility keeps economies running and allows different kinds of exchanges to remain stable.