Federal Reserve Essay

3010 Words Dec 15th, 2015 13 Pages
History of the Federal Reserve
July 12, 2011

The monetary system within the United States of America is a complex, intricate system. At the top and in control of this system is the Federal Reserve and its board of governors. The “Fed” has had an interesting history within our country since its creation in 1913. It is the central bank of the United States. It is the third such attempt, and the most successful central bank to be formed in America. The creation of the Fed was initially done to stave off financial panics, but the scope and purview of the Fed has grown over time through the enactment of many laws that give the Fed its power. The main focus of the Fed is to regulate, monitor and
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It lends to banks only if they appear strong enough to repay the loan. It also has the responsibility of promoting economic stability, insofar as that is possible, by controlling credit.
Initially, the Federal Reserve's chief responsibilities were to create enough credit to carry on the nation's part of World War I and to process Liberty Bond sales. The system's lower reserve requirements for deposits in member banks contributed also to a sharp credit expansion by 1920, accompanied by a doubling of the price level. In 1919, out of deference to the Treasury's needs, the Federal Reserve delayed too long in raising discount rates, a step needed to discourage commodity speculation. That was a major mistake. In 1922, the system's leaders became aware of the value of open-market buying operations to promote recovery, and open-market selling operations to choke off speculative booms. Benjamin Strong, head of the Bank of New York, the central banking system’s largest bank, worked in the 1920s with Montagu Norman, head of the Bank of England, to help bring other nations back to the gold standard. To assist them, he employed open-market buying operations and lowered discount rates so that Americans would not draw off their

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