Definition of Near Money
Near Money, also known as Quasi-Money, refers to assets that are not cash but can be quickly converted into cash with minimal loss of value. This category includes assets that can settle some types of debts but are not universally accepted as payment method like coins and banknotes. An exemplary model of near money includes bills of exchange.
Characteristics and Importance
Near money plays a pivotal role in the financial ecosystem by providing individuals and corporations with liquidity options that are close to cash but might carry slightly higher returns. This asset type is crucial during times of economic stress or when cash flow management is essential yet challenging.
Examples of Near Money
- Treasury Bills: Government issued, these are considered near-cash due to their high liquidity and short maturity.
- Savings Accounts: Easily converted to cash, although not instantaneously liquid.
- Money Market Funds: Highly liquid investments that are often used for cash management by large institutions.
Impact on Money Supply
It’s noteworthy that near money is not included in narrow definitions of the money supply, such as M1, which consists only of cash and checking deposits. However, it comes into play in broader money supply measures like M2 and M3, which factor in the liquidity spectrum.
Related Terms
- Liquidity: The ease with which an asset can be converted into cash.
- Money Market: A segment of the financial market where short-term instruments, including several forms of near money, are traded.
- Money Supply: The total amount of money available in an economy at a specific time.
Suggested Reading
For those looking to delve deeper into the conundrums of monetary mechanisms, the following books might be enlightening:
- “Money, Banking, and the Financial System” by R. Glenn Hubbard
- “The Economics of Money, Banking, and Financial Markets” by Frederic S. Mishkin
Navigating through the sea of finance, near money serves as a lifeboat of liquidity—close enough to cash, yet occasionally out in deep monetary waters. Sure, it may not be the star of the money supply show, but without these assets, the financial waters could be much choppier.
