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I am working on modelling the risk that a bank's cash in one currency could not be converted into another currencies. This convertability risk has liquidity implacations for the asset liabilities management of the bank.

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    $\begingroup$ For all currencies simultaneously maybe not, but for a given currency they certainly have eg. Germany 1931-1945, or Russia 1917-1989. $\endgroup$ – noob2 Aug 10 '20 at 17:22
  • $\begingroup$ Also, the ECU ceased being and was replaced by the Euro on 19990101. While there were some concerns about whether ECU contracts could be converted to Euros, that was alleviated with some legislation and some legal justification for the Euro as a successor. $\endgroup$ – kurtosis Aug 11 '20 at 7:55
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A "convertibility event" is not "FX markets closing down" but a cross-border risk event when a government decrees that its currency cannot be legally converted to another currency.

As 8 recall, Malaysia and Thailand did it in 1998; and South Korea and Ukraine seriously discussed it in later years, but never actually did.

A non-delivery contract (an NDF or embedded in another product) has no convertibility risk. Most other products involving physical currency do.

Do not confuse convertibility with transfer ability risk - another cross-border risk, when a government stops you from repatriating assets under its jurisdiction, irrespective of currency.

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