Editing Convertibility (section)

==Commodity money==
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Convertibility first became an issue of significance during the time [[banknote]]s began to replace [[commodity money]] in the [[money supply]]. Under the [[gold standard|gold]] and [[silver standard]]s, notes were redeemable for [[coin]] at face value, though often failing banks and governments would overextend their reserves.

Historically, the banknote has followed a common or very similar pattern in the western nations. Originally decentralized and issued from various independent banks, it was gradually brought under state control and became a monopoly privilege of the central banks. In the process, the principle that the banknote was merely a substitute for the real commodity money (gold and silver) was gradually abandoned.

Under the [[Bretton Woods system|gold exchange standard]], for example the [[Bretton Woods Institutions]], banks of issue were obliged to redeem their currencies in [[gold bullion]], or in United States dollars, which in turn were redeemable in gold bullion at an official rate of $35 per [[troy ounce]]. Due to limited growth in the supply of gold reserves, during a time of great inflation of the dollar supply, the United States eventually abandoned the gold exchange standard and thus bullion convertibility in 1974.

Under the contemporary [[Exchange rate regime|international currency regimes]], currencies are issued on the [[Fiat money|fiat]] of the issuer (a government or central bank), and carry no guarantee of convertibility to a tangible asset.