What is Near Money?

Near money is a term used to refer to highly liquid assets. These are non-cash assets which can quickly be converted into cash with little or no loss of value. They are often also referred to as quasi-money. Near money can sometimes be taken into account when assessing the money supply of a country which can play a role in the health of its economy.

Exactly which assets are classed as near money varies depending on who is using the term. This is because what counts as "near" depends on how much leeway is allowed for the time delays or costs of converting an asset to cash. Arguably the only asset which can be converted without time or cost penalties is money in an instant access bank account. Holdings of foreign currencies follow closely behind, as it is usually possible to convert them to domestic currency almost instantly, though there will usually be a transaction fee.

Assets which are nearly always classed as near money include government or treasury securities such as bills; this is because they are very reliable and are almost guaranteed to find a buyer. Money funds are another example as, although they are based on debt securities, they are designed to be very liquid. Money put into a bank on a fixed-term basis can also be counted, though this may be restricted to deposits which are on terms set to end imminently. In different countries these deposits are known as certificates of deposit, bonds, time deposit and term deposits.

Other types of assets which are liquid in practical terms are not classed as near money. The most common example of this is company stocks. Although most stocks can be converted to cash without much trouble in reality, this is not guaranteed as stocks can and do go through periods where there are few would-be buyers. It's also difficult to put a long-term value on a stock as its price can vary over time. This is in contrast to most types of near money, where the value is either fixed or does not vary significantly.

Near money can have a significant effect on an economy, second only to extra cash. This is partly because it can easily be converted to cash, thus increasing the money supply. Another reason is that savings held in highly liquid form are much more likely to be spent than those tied up in long-term savings which can't be accessed without delay or penalty.