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The Federal Reserve System - Term Paper Example

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The Federal Reserve System or Fed is the central bank of US and is operating at both the federal as well as State level. Created in 1913 through Federal Reserve Act, it has served US as one of the leading economic policy making institutes in the country. …
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The Federal Reserve System
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Download file to see previous pages Its major mandate is to regulate the monetary policy in the country in order to support the broader economic objectives of economic stability, low inflation as well as the unemployment level.
President of United States of America appoints the chairman of the Fed along with the seven members of the board of governors. Board of governors is required to serve for the period of 14 years however; the approval of the Congress is required in order to give legal credence to the appointment of the members of the Board.
This paper therefore will discuss Fed, how it operates, and its role in the future monetary policy besides discussing its structure and broader objectives it is required to achieve.

The Role of Central Bank

Before discussing The Federal Reserve System, it is important to present a discussion on the role of central bank within the economy and how it supports it.
There are three important tasks or functions of a central bank within an economy i.e. to issue currency notes, regulate monetary policy as well as control the inflation. Based on these broader objectives, a central bank therefore also serves as the banker of the government and serves as lender of lost resort for the banking system in the country. Its role is therefore not just limited to the management of monetary policy within the economy but also to ensure that the whole financial system remains stable and intact. (Blinder)
The overall primary function of a central bank is to regulate the monetary policy of a country however, there are also other functions also including managing interest rates within the economy , ensuring that inflation remains within the acceptable level and issuance of currency notes as legal tenders. Managing the level of unemployment at a certain level is also one of the key tasks of a central bank. The recent economic downturn could have resulted into the overall collapse of world financial system however, timely intervention from the central banks of different countries ensured that the financial system remains intact. During the current phase, different central banks therefore took steps which were not traditionally related with the central banks. Steps such as quantitative easing, injecting liquidity into the financial institutions resulted into the complete aversion of the collapse of whole financial system. The Federal Reserve System The Federal Reserve System or Fed is the central banking system in United States of America and was formulated during 1907. Over the period of time, the roles and responsibilities of the Fed as a central bank of the country have also evolved and Fed is now considered as one of the most advanced central banking systems in the world. (Greider) It is to be noted that the Fed as a system evolved as a resulted of the enactment of different laws which gave different powers to Fed. Over the period of time, the overall independence of Fed as a monetary policy authority within the country has increased and Fed is now completely independent in taking its own decisions without significant intervention from the Government or any other body of the State. Fed was initially formulated in order to tackle the initial issues faced by the US economy due to wider fluctuations. However, its role was further broadened and expanded in the wake of the ...Download file to see next pages Read More
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