# Is Fungibility Dynamic or Static

I'm trying to work out if fungibility of financial assets / instruments is dynamic (i.e. it can be applied to a subset of the asset or instrument's properties) or is it static (i.e. it can only be applied to all of the asset or instrument's properties).

• law - (of goods contracted for without an individual specimen being specified) replaceable by another identical item; mutually interchangeable.

In layman's terms, a £10 note is replaceable / mutually interchangeable with another £10 note, or 2x £5 notes, or 10x £1 coins, etc. The reason for this being that (fakes aside) all Sterling is minted by the Royal Mint, issued by the Bank of England, and represents the same underlying currency (Sterling / Great British Pound).

In a world increasingly adopting digital currencies (such as Central Bank Digital Currency CBDC), crypto-currencies (such as Bitcoin and Ethereum), and Non-Fungible Tokens (NFTs, such as CryptoKitties), I wonder if the adopted rules of fungibility apply?

If I (or more likely the Royal Mint) were to create e-Sterling; a token that represents the digital equivalent of Sterling/GBP, the token may be modelled with properties that describe the type of token; for example:

Token {
issuer = Royal Mint
holder = anyone
symbol = GBP
exponent = 2
amount = x.xx // Note the decimalisation to <exponent> decimal places
}


Let's assume that fungibility of this token is defined by its issuer, symbol, and exponent, that would imply that only tokens with the same properties would be fungible with one another.

However, what if the Royal Mint then decided to issue a similar token that was intended to represent Sterling/GBP in whole units, rather than fractional ones; for example:

Token {
issuer = Royal Mint
holder = anyone
symbol = GBP
exponent = 0
amount = xxx // Note the decimalisation to <exponent> decimal places
}


Now we have two tokens that both represent Sterling/GBP, however their fungibility could be described like so:

• n tokens where the exponent is 2 are fungible.
• n tokens where the exponent is 0 are fungible.
• n tokens where the exponent is 2 or 0 are fungible only when the amount of decimalised tokens represent a whole, integral number.

Another example might be that the token definition may describe an encumbrance; for example:

Token {
issuer = Royal Mint
holder = anyone
symbol = GBP
exponent = 2
amount = x.xx // Note the decimalisation to <exponent> decimal places
encumbrance = some encumbrance contract or reason
}


Technically, the token still represents Sterling/GBP, however encumbering the token could affect its fungibility.

Questions

1. Should financial asset / instrument fungibility be static or dynamic?
2. Are there any other examples of dynamic fungibility?
3. What properties of financial assets / instruments affect fungibility?
• Is fungibility absolute? Would Tesco let me pay for £100 worth of groceries with 100 £1 coins? Jul 10 at 21:29