Money Zero Maturity (MZM)

What Is Money Zero Maturity?

Money zero maturity (MZM) represents the readily available money in an economy and is a measure of the liquid money supply. It includes cash and money in a checking account but excludes money in a bank CD as it is not immediately usable.

Key Takeaways

• MZM is a measure of liquid money in an economy.
• MZM includes M2 measure minus time deposits, plus all money market funds.
• MZM is a preferred measure of money supply as it represents readily available money for spending.
• MZM does not include CDs as they are not redeemable at par value.

Understanding Money Zero Maturity (MZM)

MZM, which comprises the M2 measure minus time deposits and all money market funds, has become a favored measure of money supply. It accurately represents money that is available for spending and consumption in an economy. The Federal Reserve stopped tracking M3 in 2006. MZM gets its name from the combination of liquid and zero maturity money found within the three M’s.

MZM includes money in the following categories:

• Physical currency (coins and banknotes)
• Checking and savings accounts
• Money market funds

MZM only includes money that can be redeemed at par value. Therefore, time-related deposits and certificates of deposit (CDs) are not part of MZM. Economists and central bankers use MZM, in addition to the velocity of MZM, to predict inflation and growth. The availability of more funds for spending can indicate inflationary pressures.

According to data from St. Louis FRED, the total MZM in the U.S. economy exceeded $1 trillion in 1982 and reached $4.4 trillion at the turn of the 20th century. Prior to the Great Recession in 2008, the total MZM was $8.2 trillion. By June 2019, it had surpassed $16 trillion.

This data is not a reliable predictor of the economy or stock market trends. For example, the flat trend in MZM’s total in 2005 did not cause the recession that began in 2007. The decline in 2009 and 2010 should have led to a more severe downturn, but it did not.

Instead of using this data as a highly correlated predictor of market movement, economists consider it along with other factors to model market behavior and trends.