Currency inconvertibility and non-transfer
Political risk that an investor cannot convert a local currency or repatriate funds due to state restrictions.
Currency inconvertibility and non-transfer is a political risk cover for the inability of an investor or company to convert a local currency into foreign currency or to repatriate funds out of the host country, due to state-imposed restrictions: exchange controls, transfer freezes, currency shortage. Distinct from classic exchange-rate risk, which concerns price fluctuation, this risk concerns the administrative blocking of flows. It is part of the political risk family alongside expropriation and political violence, often bought by international investors, financing banks and export credit agencies. Underwriting requires analyzing the country's macroeconomic and political stability, the state of its foreign reserves and its history of capital-control practices. Balance-of-payments crises in emerging economies are the main trigger of this type of loss.
Textbook case: a company prevented from repatriating its profits following a transfer freeze decreed by a state in a currency crisis can be indemnified under an inconvertibility cover. Dated case: on September 1, 2019, emergency decree 609/2019 reinstated exchange controls in Argentina; foreign subsidiaries needed central bank approval to buy foreign currency and repatriate dividends, and most of those restrictions were only lifted in April 2025.
- MIGA Convention of 1985, Article 11 (currency transfer risk)
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