What is MONEY AND NEAR MONEY | Financial Institutions and Markets | MECE004

MONEY AND NEAR MONEY 

Money is not important as money because modern money is of no use on its own. One can neither eat it nor wear it. But it acts as a medium of exchange and mediates for transactions. In this way it removes the problem of double coincidence of wants. Money is used most commonly as a medium of exchange and has become very important for transaction motive and to settle credit transactions. 

Definition of Money:

According to Fisher, ‘Money is what money does.’ In the words of Crowther, Money can be defined as anything which is generally acceptable as a means of exchange and also acts as a measure and store of value. 

• Money is a function of four; medium, standard, unit and store. 
• Medium of Exchange. 
• A Store of Value. 
• A Unit of Account. 
• A standard of deferred payments. 

Measuring money is not as easy as defining it. Should money include only currency or currency and other stored forms of money? It takes us to concept of near money. 

Near Money 

Those assets which are easily convertible into cash without loss of time and money is called near money. Examples of near money include: 

• Gold; 
• Money Market Funds; 
• Demand Deposits of banks and post office deposits; 
• Securities of Government; 
• Bonds near their date of redemption; 
• Equities or shares of corporate sector; 
• Foreign currencies especially widely traded like US $, Yen, Pound etc.