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 analysing 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.
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.
currency inconvertibility, inconvertibilité des devises, non-transfert, CITN