The Concept of near Money

Strictly speaking money includes the currency notes and coins which are legal-lender and perfectly liquid. However besides these, there are number of other assets that can be converted into cash with reasonable certainty and without, loss of value. Such - assets are called near money.

Near Money is not perfect money but something adjacent to" it. ft possesses certain characteristics of perfect money and can be converted into money easily.

in practice near money is such assets that are called M2 and M3 (see question on "Definition of Money). A characteristics of near money is that mostly they are interest earning assets.

Difference between Money and Near Money

Following are the points of differences between money and near money.
Money                                                                                       Near Money

1, Interest Earning

Interest is earned on near money that is why when interest rates-are high there is a tendency to hold wealth in form of near moneys. The rate" of inflation however affects the real rate of interest. Due to increase in the rate of inflation real interest rate decreases.

No interest is earned on it. Its value is affected by the rate of inflation. If the general price level increases the value of liquid money falls. On the other hand if Aere is an appreciation in the exchange market, the value of money increases.

2. Content

ft is denoted by Ml and includes currency, It includes M2 + M-3 (fix deposits, bearer
coins.                                                               certificates, bonds etc.)

3.-Liquidity

B is perfectly liquid. It is the most readily It'can be used as money but it is not
available source to pay off any business perfectly liquid. It,has to be converted into
obligation                                                          cash before using it for any general

purpose.

4. Legal rentier

Money (currency and  coins)  are  legal, This is not a legal tender. The creditor can
lender. These can be used to discharge any   refuse to take payment in the form of near
•amount of business obligations.  money.

5. Standard Unit

, This is a standard unit. All prices, debts,   This is not a standard unit. It cannot be amounts are stated in it. Further the estimate   used. to state value of any assets or of likely liabilities and future economic   estimate of any liability benefits can also be stated in terms of money