Is fungibility falling out of favor in finance? Economists have traditionally called a good fungible (which comes from the same Latin root as function) when its individual units are interchangeable or essentially indistinguishable for a given transaction. Bags of grain, barrels of oil, and shares of stock are common examples of fungible items. On the other hand, assets like real estate and baseball cards are not considered fungible because each unit has unique qualities that add or subtract value. A 1952 Mickey Mantle rookie card does not have the same value as a Clyde Kluttz rookie card from the same year.
Historically, maybe the most important fungible feature of the financial markets has been money. All dollar bills should be treated the same when used as currency. However, no matter how identical goods may appear at first glance, every item, even money, has its own unique backstory. And recent news reports show that modern society has both the temperament and technology to track and act on this information.
Reuters reported on disparities in the market for gold bars (maybe history’s first fungible currency). Gold that has been mined or processed in places deemed not acceptable to the West like Venezuela, North Korea, or parts of war-torn Africa have entered international markets priced at a discount to bars stamped with the emblem of a more respectable refinery. The same weight of the same precious metal differentiated only by their origin story. Looking at more modern monetary ideas, we see that digital currencies like Bitcoin may likewise lack fungibility. The blockchain technology that underpins these assets can provide a distributed ledger that shows the complete history of transactions for each coin. Analysts have argued that this could cheapen money that have been involved in dubious activities like drug trafficking in their past. Some smaller digital currencies have already added data flags to their coins to explicitly indicate which ones were involved in a criminal activity and should therefore be de-valued.
As the ability to store and analyze data increases, it is possible that the idea of fungible goods disappears, as every item’s pedigree is available for public consumption. Whether this would be beneficial to commerce or society at large, remains to be seen.
Old TV shows, like The Patty Duke Show, tried to make identical cousins fungible. Modern technology tries to make gold bars unique.