"Does The U. S. Need The Federal Reserve? Why? Or Why Not?"

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Finance Paper: "Does the U. S. need the Federal Reserve? Why? or Why not?"


The Federal Reserve System (Federal Reserve System, informally Fed) is the central banking system of the United States . The Federal Reserve System is a private entity with a particular audience within the government structure responsible for keeping all your bank funds the U.S. banking system. The Board of Governors of the Federal Reserve System is an independent government agency, however is subject to the Freedom of Information (Freedom of Information Act). Like many independent agencies, its decisions do not have to be approved by the President or anyone in the executive or legislative branch of government. The Board of Governors does not receive money from Congress, and his term runs spanning several governments and legislatures. Once the President appoints a board member, it becomes independent, however, may be removed by the President as provided in Section 242, Title 12, United States Code (Axilrod, pp. 15).

Need of FED

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 run).

Role of the Federal Open Market Committee in conducting Monetary Policy

The Federal Open Market Committee (FOMC) is the main organ for the design of monetary policy at the Fed. Its task is to determine monetary policy to support economic growth, full employment, price stability and external balance. The FOMC meets the central decision in the open-market operations, that is, the buying and selling of securities n the U.S. government. Thus, it affects the amount of cash reserves of financial institutions, and thus the cost and availability of money and credit in the U.S. economy. In addition, it operates the currency trading of the Fed. The Monetary Policy Committee of the Fed (FOMC) meets eight times a year and decides the guidelines for changing rates. It is composed of 12 members: the seven Fed governors, who joined the Fed in New York and four presidents of regional reserve ...