U.S. Federal Reserve System Analytical Essay

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The “Federal Reserve System” is a central bank that operates whilst shunning the influence of powerful persons in the U.S congress (Krautkramer, 2004). During its initiation in 1913, the Glass-Owen bill was the determinant regulatory process that enhanced its existence and viability.

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However, many distinguished U.S congress officials did not contribute to the process since it occurred during holidays. The president, D.R Thomas strongly vouched for the inception of a Federal Reserve.

This is evident when he passed the bill, an hour after congress’ ratification. Regardless of the fact that the Fed is sovereign body, the U.S president signs up the chairperson who administers its operations (Krautkramer, 2004).

Evidently, the appointment became legitimate after the executive council’s approval. Similarly, the executive council does not influence the overall operation of the Feds, a factor that indicates its independent nature. The legislature accorded Feds the authority to devise and execute monetary policies.

Noticeably, the 1913 law is an exemplar of the powers granted to the Fed. Various sections in the 1913 law offer detailed information regarding the system (Krautkramer, 2004). Section 30 of the same law granted the member banks an opportunity to own shares from the Fed.

Additionally, section 341 gave the Fed a lifespan of 20 years upon inception. The expected time of termination was in 1933; however, the efficient management and success in monetary management enhanced its lifespan.

The “Federal Reserve act” barred congress representatives from playing roles in the reserve board (Krautkramer, 2004). The senators did not assume office as directors of the reserve bank.

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Consequently, section 25 allowed banks with capital surpassing 1,000,000 dollars the chance for membership application. This qualification facilitated growth thus reaching other foreign entities. Noticeably, the Federal board had the power for accepting or rebuffing such applications.

However, in 1976, the government commissioned the directors to carry investigations on its true ownership (Krautkramer, 2004). Their studies indicated ties between the Rothschild’s representatives and the banking houses in England.

The two representatives situated in New York formulated the original plans for its implementation. However, the directors later disclosed that the British monarchy was the authentic owner of the Reserve. Over time, varied U.S presidents focused on revising the reserve’s acts to enhance its efficacy. In 2002, President Bush introduced minor changes on how the entities operations.

Central bank, which is the key lender in the market, plays vital roles in managing a nation’s money. To accomplish its duty, it undertakes engages diverse process and responsibilities. Nevertheless, central bank is the main controller of banking institutions in any country.

In an endeavor to manage the country’s monetary systems, central bank carries out various roles (Mukherjee, 2007). These entities are solely responsible for issuing notes. However, in 19th century, diverse commercial banks performed such a role.

With time, reports of lack of uniformity arose thus, these powers were subject to withdrawal, and central banks granted the responsibility. The central bank staff consists of high proficient staff in money management mandated to control money movement.

The law stresses that; different banks in any state should keep their cash assets with the central bank. These banks may borrow this cash during emergencies thus its classification as the banker’s bank (Mukherjee, 2007). Commercial stores facing liquidity predicaments target the central bank, which acquire their securities. It is the ultimate supply of funds for countries.

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Additionally, through managing the monetary system it plays banking and advising roles to the government. It is mandated to keep and maintain the bank accounts on the government’s and state behalf. However, they control the circulation of credit in a country by utilizing its policy.

This controls the commercial banks lending power (Mukherjee, 2007). It highly limits chances of inflation in countries or states. In addition, central banks solely keep foreign currencies aimed at offering money in note form. This is in an effort to correct deficits emanating from the “balance of payments” (Mukherjee, 2007).

Over years, a great proportion of policy makers in various states in U.S. have noted the working tactics of maintaining a stable inflation. These focus on stimulating economic growth, maintaining reliable markets and economic stability (Severov, 2006). Nevertheless, the present focus for the Fed is checking the pricing stability.

The committee that majorly deals with matters of monetary policies usually meets at designated and well-planned occasions. During their recent meeting, they were concerned in monitoring the state’s commodity pricing and provision of reliable employment to citizens. Therefore, the monetary policy has strategies for checking the funds rates offered. This aids in obtaining the prime goals.

In the event that the monetary policy improves the capital markets, the wages and commodity prices also increase tremendously. However, monetary policies that attempt to maintain short-term rates eventually result in inflation (Severov, 2006). Consequently, the rates increase incredibly; furthermore, the overall output decreases thus resulting in diminishing employment opportunities.

The results of studies undertaken by professionals confirm the absence of a correlation between monetary policies and employment trends. However, the policies can affect the future inflation as evident in people’s perception. An example that clearly illustrates this scenario is easing restrictions on monetary policy.

In such occasions, the consumers and other prominent business people demand augmentation in their wages and escalation of prices. This culminates in increased inflation with minimal alterations in the original output and employment opportunities (Severov, 2006).

References

Krautkramer, W. (2004). The Federal Reserve- its origins, history & current strategy. Web.

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Mukherjee, S. (2007). Modern economic theory. Daryaganj, ND: New Age International.

Severov, G. (2006). International finance and monetary policy. New York, NY: Nova Publishers Inc.

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