By S. Wade Hansen, analyst at

Definition: Money of Zero Maturity (MZM)

Money of zero maturity (MZM) is a measurement of the total amount of money in the economy that is immediately accessible at par value to individuals and companies. In other words, MZM measures all of the money held in the following:Understanding

- Hard currency (coins and bank notes)

- Checking accounts

- Savings accounts

- Money market accounts.

As you will see in the video, the MZM does not take into account money that is held in certificates of deposit (CDs) or other time deposits because the money held in these financial instruments is not immediately accessible at par value.

Application: Money of Zero Maturity (MZM)

The money of zero maturity measurement is a good indicator of the monetary base of the economy-how much money is actually floating around in the economy. In fact, it is one of the most popular monetary measurements since the Federal Reserve stopped tracking the M3 money supply numbers on March 23, 2006.

Knowing how much money is in the economy can give you a sense of the following two things:

- Whether the economy is growing or contracting

- What the risk of inflation is in the near term

Money of Zero Maturity (MZM) Chart-Source: Federal Reserve Bank of St. Louis

Looking at the chart of the MZM, you will notice that it seems to constantly be moving higher, but the rate of growth varies from week to week, month to month and year to year. When the rate of growth increases, you know the economy has a good chance of expanding and that we face an increased threat of inflation. When the rate of growth decreases, you know the economy has a good chance of contracting and that we face a decreased threat of inflation.

Video Lesson: Understanding Fractional Reserve Banking

I've scratched the surface of this topic in the article above, but I go into more detail about the MZM in the Understanding the Money of Zero Maturity (MZM) Measurement Video. Click here to watch.

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