The Federal Reserve System

The Federal Reserve System

Federal Reserve System

The Central Bank of the United States is the FED. FED stands for Federal Reserve System, but is also known as the Federal Reserve. Although the Federal Reserve is an independent public institution, the U.S. central bank is owned by several large banks and not the state. Besides the national FED, there are 12 regional Reserve Banks. 5 delegates from these regional reserve banks, along with seven Board of Governors members that make up the FOMC (Federal Open Market Committee).

Three Primary Roles of the 12 Federal Reserve Banks

Following are the three main functions of the 12 Federal Reserve Banks:

It is the bank of issue that is the only bank authorized to issue money. An exception in the U.S. banking system is that the right to issue the single currency (the dollar) is with the 12 regional Federal Reserve Banks (Federal Reserve System).

It is a state bank. The central bank collects revenues and implement spending budget, the government provides loans to finance the budget deficit, managing debt, make open market operations, and collect gold and foreign exchange reserves (Hafer, 2005).

It is a bank of national economy. It regulates the money supply, keeping it at a level appropriate to the current needs of the economy, ensures the availability of credit conditions and determines and regulates the exchange value of the currency. These actions are intended to ensure internal stability of the economy and its development.

The Fed also has some other features, among which are:

Management of the national currency reserves through monetary policy in order to:

Avoid or reduce inflation and deflation (price stability).

Maximize employment;

Interest rates to achieve long-term moderate.

Supervision and regulation of private banks;

Strengthening the U.S. position in the world economy;

Prevent or mitigate panic among banks (bank ...