What is Money Zero Maturity?

Money of zero maturity (MZM) is a measure of the liquid money supply within an economy. It represents all money that is readily available or in a liquid state. It includes money as cash in hand or money in a checking account, for example. Money in a bank CD would not be counted, however, because it isn't in a state ready to spend or otherwise use immediately.

Key Takeaways

  • Money zero maturity is a measure of liquid money in an economy.
  • It measures readily available cash from bills and banknotes, checking, savings and money market accounts.
  • It does not include CDs or time deposits.

Understanding Money Zero Maturity (MZM)

For those familiar with money supply measurements, MZM includes the M2 measure less the time deposits, plus all money market funds. MZM has become one of the preferred measures of money supply because it better represents money readily available within the economy for spending and consumption. Furthermore, the Federal Reserve stopped tracking M3 in 2006. This measurement derives its name from its mixture of all the liquid and zero maturity money found within the three M's. MZM includes money in all of the following:

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

For money to be included in MZM it has to be redeemable at par value, which is why money in time-related deposits or certificates of deposits (CDs) are not included in MZM. Economists and central bankers use MZM along with the velocity of MZM to better predict inflation and growth, because, the more funds readily available, the more money there is to spend, which can be a sign of inflationary pressures.

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

This data isn't a close predictor of the economy or of the stock market price trend. For example, though MZM's total remained flat for most of 2005, the recession that started two years later in 2007 and played out with such devastating effects was not attributable to that pause in trend. If so, then the flat out decline that occurred in 2009 and 2010 should have led to an even more devastating downturn, but it has not been so.

Instead of considering this data as a highly correlated predictor of market movement, economists use this as an input along with other factors to model market behavior and trends.