Currency convertibility is the ease with which the currency of a country can be freely converted into any other foreign currency or gold at market determined exchange rate based on demand and supply for that currency. For example, convertibility of Indian rupee is the ease with which rupee be converted into any foreign exchange like US dollars, Pound sterling, Euro etc and vice versa. The government can put restrictions on foreign exchange convertibility which can lead to low currency convertibility.
To ensure faster growth of the world trade and the flow of capital between different economies, easy convertibility of currency is necessary. The restrictions on the convertibility of different currencies create roadblocks in the flow of capital between different countries which negatively impacts the economic growth and world trade.
