Inactive money

By:

James Knight

James is a lead editor for Invezz, where he covers topics from across the financial world, from the stock… read more.

Updated: Aug 20, 2021

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That portion of the total stock of money or money supply(currency plus bank deposists) in existence at any one time which is not being used to finance current transactions or being lent out on the money market. It may also be referred to as idle money. It need not remain constant in amount over time, since part of it is meeting the demand for money arising out of the speculative motive, and so will vary with changes in rates of interest and prices of other financial assets – bonds, stocks, shares, etc. Inactive money can be represented as resulting from what Keynes called liquidity preference, i.e. the desire to hold money rather than interest-earning assets, and real goods.

Reference: The Penguin Dictionary of Economics, 3rd edt.