MZM (Money Zero Maturity)

MZM—Money Zero Maturity—is a comprehensive measure of the US money supply that includes all assets immediately spendable or redeemable at par value with no delay or penalty. Unlike narrower aggregates like M1, MZM casts a wider net to capture not just currency and demand deposits but also money market accounts, overnight repos, and short-term mutual funds that function economically as money.

Why “zero maturity”?

The “zero maturity” label captures the defining feature: MZM encompasses only assets that can be redeemed or spent immediately at their stated value, with no wait and no price risk. This includes currency, cheques, and demand deposits—the core of M1—but extends to savings accounts, money market accounts, and other instruments that, whilst not technically on-demand, are so liquid that they function as money in practice.

Excluded from MZM are bonds, certificates of deposit, and other fixed-maturity instruments. A Treasury bond maturing in two years cannot be redeemed early without selling it on the secondary market at a potentially different price. This price risk—the gap between par value and market price—disqualifies it from MZM even if its maturity is looming.

The threshold is economic, not legal. Some money market funds are technically redeemable by mail with a lag, but if that lag is customarily waived or the fund accepts electronic redemption, it is counted in MZM. The principle is: if the public treats it as spendable money, MZM includes it.

Components and measurement

MZM consists of several layers. The innermost core is M1—currency held by the public and demand deposits. On top of this sit savings deposits, money market deposit accounts (MMDAs) offered by banks, and holdings in money market mutual funds (MMMFs). Many of these are FDIC-insured up to limit thresholds, and nearly all are available for withdrawal with minimal friction.

The measure also includes overnight repurchase agreements, a form of short-term secured lending where one party sells a security, typically a Treasury bond, with an agreement to repurchase it the next day. To the holder, an overnight repo is economically indistinguishable from a very short-term deposit; it is liquid, safe, and accessible immediately.

Institutional and retail money market funds also feed into MZM. These are mutual funds holding short-maturity, highly rated securities—Treasury bills, commercial paper, short-term municipal bonds. Investors in these funds can redeem shares at net asset value (NAV), effectively at par, often on demand. In economic function, they are money.

The Federal Reserve publishes MZM data regularly. The measure is the broadest of the traditional aggregates still actively monitored by policymakers, sitting beyond M2 (which stops at retail-level savings and money market accounts) and roughly equivalent in breadth to the deprecated M3, which was discontinued as a closely watched aggregate in 2006.

The rise of MZM as a policy benchmark

MZM gained prominence in the 1990s when the Federal Reserve and economists became frustrated with the unreliability of traditional measures. As financial innovation proliferated—sweep accounts that automatically moved funds between demand and savings, brokerage cash management accounts, money market funds—the boundaries between M1, M2, and M3 blurred. A household’s financial assets, even if legally classified as savings, could be spent with the speed and ease of a demand deposit.

Some econometricians observed that MZM appeared to track real economic activity and inflation more closely than traditional aggregates. During periods of financial stress, when the public preferred liquid assets, MZM would spike; during booms, it might grow more slowly relative to real output. This led the Federal Reserve and researchers to view it as a superior barometer of monetary ease or tightness.

However, MZM’s predictive power has been inconsistent. The 2008 financial crisis and subsequent recovery saw a massive surge in MZM (as the Fed bought securities) yet subdued inflation for years. The pandemic period again saw explosive MZM growth with initially moderate but later significant inflation. Whether MZM is a true leading indicator or merely a coincidental correlation remains contested.

Relationship to other aggregates

MZM sits in an intermediate position between the narrow and very broad. M1—currency plus demand deposits—is the narrowest and most obviously “money.” M2, the most commonly cited measure, adds savings deposits and retail money market accounts. MZM, whilst narrower than the old M3, is substantially wider than M2, encompassing institutional money market funds and certain other wholesale instruments.

In the UK and eurozone, comparable broad measures exist. The UK publishes M4 broad money, which includes private-sector deposits and some non-bank-held financial assets. The eurozone tracks M3, which includes bank deposits, money market fund shares, and repo-like instruments. MZM is the American refinement of this tradition—an attempt to capture the economically operative stock of medium-of-exchange assets in a complex, evolving financial system.

Limitations and critiques

MZM’s broadness is also its weakness. By including money market funds, overnight repos, and other near-money instruments, it conflates assets that, whilst liquid, are not equally accessible or safe. A money market fund holding commercial paper carries default risk, however small; an FDIC-insured deposit does not. Averaging them together in one measure smooths over genuine financial distinctions.

Additionally, MZM suffers from a boundary problem similar to traditional aggregates. As financial innovation continues—crypto-based stablecoins, payment apps, decentralized finance protocols—where does MZM end and speculation begin? The Federal Reserve has no mandate to count cryptocurrencies as money, yet some households treat them functionally as a medium of exchange.

Some heterodox economists and Post-Keynesians argue that all monetary aggregates, MZM included, rest on a fundamental misconception: that money is a single, measurable stock that drives nominal spending via a stable relationship (the “quantity theory”). They contend that endogenous money creation by banks responding to real demand, not exogenous central bank control, is the truer picture. From this view, MZM is a useful accounting identity but not a causal driver of prices or output.

See also