Near Money
Near money is a concept closely related to liquidity. Liquidity refers to how fast the money can perform the economic actions like buying, selling, or paying debt, meeting immediate wants and needs. There should not be loss of time and value in perming the economic functions. Thus, liquidity of an asset is the easy conversion into money without any loss in time and value. If you have Rs. 100 in your pocket; you can easily perform any economic activity within the reach of the value of Rs. 100. This means that currency which we hold is cent percent liquid.
In the same way, the demand deposits such as cheques, demand drafts etc. can be encashed immediately and so they are also liquid assets. However, some financial assets may not be as liquid as the currency notes and chequable deposits. For example, the time deposits, Bankers Acceptances, Bills of Exchanges, Government and Private Bonds, Saving certificates, Shares etc. though possess the power of money but are not able to immediately perform the economic activities but still they are highly liquid and can be easily converted into money. Thus, these are called “Near Money”. The difference between money and near money is of liquidity.
Near money is also known as Quasi-money. These are highly liquid assets that can easily be converted into cash.
The examples of near money are:
- Savings account
- Money funds
- Bank time deposits (certificates of deposit)
- Government treasury securities (such as T-bills)
- Bonds near their redemption date
- Foreign currencies, especially widely traded ones such as the US dollar, euro or yen.
The real estate can not be called near money. The holder of the real estate needs to covert it into money before performing economic activities. This conversion may cause a change in the value. That is why Land and buildings are not termed at money or near money. At the same times, assets such as Gold and silver are more liquid and sometimes called near money.
