History of creation and functions of the FRS
Many people today have a prejudiced attitude towards the US Federal Reserve System. After all, it is she who issues dollars that increase the national public debt in the absence of collateral. And it is the national debt that is the favorite topic of the adherents of the world conspiracy theory: “Sooner or later, the entire financial system of the world will collapse and people will remain in their arms with candy wrappers, and the United States will again all …”. There are also those who, on the contrary, see the FRS as a salvation from all sorts of financial cataclysms. After all, it is the Fed’s merit that the 2008 crisis was eventually passed relatively successfully. Although this is also a rhetorical question.
US Federal Reserve
Surprisingly, the US Federal Reserve as the country’s main bank appeared much later than commercial banks. At that time, there was no need for a governing structure and centralization of financial market participants. After the War of Independence, the United States needed to control the repayment of the national debt, which grew due to military costs. In 1791, the First Bank of the United States was created, which became the prototype of the United States Federal Reserve System.
The created bank oversaw the policy of issuing the national currency. But since it was only partly state owned, a conflict of interests arose between private owners and the state, as a result of which it had to be closed in 1811. The Second Bank of the United States, created in 1816, also existed for about 20 years and also closed.
In the period 1873-1907, the country’s economy was shocked by several economic shocks at once, which showed the need to create a single central structure that would take responsibility for controlling the relationship between other participants in the financial system. However, the idea did not catch on with the local population. A similar structure has already been created in Europe and turned out to be unsuccessful due to uncontrolled waste of budget funds.
In the late 1880s, a community was created on the private island of Jekyll, which included the most powerful people who possessed most of the world’s wealth. They developed a structural documentary basis for what the Fed subsequently grew on.
In 1912, the country’s leadership nevertheless came to the conclusion about the need for a Central Bank, and in 1913 the law on the US Federal Reserve System was signed by President Woodrow Wilson.
- Control over the country’s financial system: resolving disputes, protecting the interests of investors, depositors, borrowers.
- Coordination of interaction between all subjects of the financial market, including regulators.
- Control over the level of money supply in the country: emission of national currency, change in discount rates, etc. Management of monetary policy instruments.
- Stabilization of prices and employment of the population.
- Supporting liquidity by providing loans, issuing debt securities, and pursuing quantitative easing policies.
- Depository services for US government agencies and international organizations.
- Ensuring the operation of the system of domestic and international payments.
The characteristic difference of the US Federal Reserve System is that the structure is not owned by the state. It is a joint stock company and shares are owned by a narrow circle of individuals. This is partly why critics dislike the Fed, believing that it is capable of turning the world’s financial markets in its direction. Nevertheless, anyone who meets its requirements can buy the Sistema shares. Speculations on the Fed’s securities are ruled out, but dividend income is provided for their holders. In addition, the shareholders are entitled to participate in the selection of 6 representatives from 9 regional branches.
Continued in the next part.