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What is Money of Zero Maturity (MZM)?

2016-11-03T09:18:07+00:00

The term 'Money of Zero Maturity (MZM)' is included in the Banking edition of the Financial Dictionary. Get yours now on amazon in ebook or paperback format. Read more here...

Money of zero maturity represents a way of measuring the money supply. This measurement for money which is circulating in an economy only covers money that is available to be spent and utilized. As such, this MZM is really a counting of all of the money supply that is liquid in a given economy.

Individuals can figure up the money of zero maturity with some basic math. This starts with obtaining the M2 measure of the money supply. From this M2 figure, all time deposits must be subtracted, such as with certificates of deposit. Next this result must be taken and added to the amount of money market funds which are available. This sum finally provides the MZM.

In practical terms, this measure of money includes several different components. All physical currency, including bank notes and coins, are a part of it. Checking account balances are also included. Savings account totals similarly comprise the MZM. Finally, money market accounts round out the figure. These are all configurations of money which are immediately available for par value to both companies and individuals.

Other forms of money are not included in the measure. Money of zero maturity never considers money held in accounts such as certificates of deposit or any other types of time deposits. This is because these funds contained in such financial instruments can not be instantly accessed for full par value. Similarly investments held in stocks and bonds must be first sold and settled before they can be obtained.

A number of analysts like to utilize the money of zero maturity because it proves to be an extremely liquid measurement. In fact this has grown to become among the most preferred means of measuring the country’s money supply exactly because it does more completely depict the readily available money in the economy that can be employed for consumption and other spending. The name for this money measure comes from its combination of all available liquid and money with zero maturity that the three M’s contain in M1, M2, and M3.

There are practical applications for the money of zero maturity measurement. The figure presents a reliable indicator of a nation’s actual money base for the entire economy. As such it depicts the quantity of money which is literally moving throughout the economy as a whole. Since the Federal Reserve quit tracking and following the M3 number for money supply back in 2006 on March 23rd, this has become a preferred measurement of money supply, if not the most popular one.

When economists and analysts are aware of the amount of money which is moving throughout the economy, they can develop a feeling for two important trends. They are able to learn at a fairly quick glance whether or not the economy is growing or is instead contracting. By studying this figure, they can also determine how high the danger for inflation is over the near term.

When economists look at a chart of the MZM, they are interested in the rate of growth on a year to year, quarter to quarter, or month to month basis. As this growth rate improves, the economy is likely to expand along with it, and the threat of inflation increases apace. If instead the growth rate in the MZM decreases, the economy stands a solid chance of shrinking. This would mean inflationary threats are lower.

The term 'Money of Zero Maturity (MZM)' is included in the Banking edition of the Financial Dictionary. You can get your copy on amazon in Kindle or Paperback version. See more details here.