Why was the federal reserve created? What is a federal reserve and who owns it? How does it accommodate the world’s economy? These are the questions which jog through many minds looking for suitable answers. The Federal Reserve System is also called as the Federal Reserve or The Fed. It is a major banking system in the USA that equalizes the incomes and interests of various departments. It was inaugurated on the 23rd December 1913 by Woodrow Wilson after he signed the Federal Reserve Act.
The Federal Reserve is an independent object recognized by the Federal Reserve Act of 1913. Therefore, no specific person owns it, but the government of the USA.
Moreover, it is necessary for the bank to endure as an individual entity and to remain free of political impacts and implications so that it can function with honesty. On the contrary, political encouragement will make the bank less bright and vivid. The clarity and precision will no longer be a part of the procedural function. Thus, it is better for the bank to remain as an individual funding associate.
The structure and function of federal reserve system
12 Federal Reserve Banks are functional around the country to carry out all the explicit functions. They have the same functions to work on, but the policy makers can also cause a change. The major objective of this bank is to provide economic security to the entire country. Function performed by the fed answer the question is true sense that why was the federal reserve created?
1. Setting monetary policy
There are two essential priority-based aims that the Fed is working hard to achieve:
- Greater rate of employment and
- Lower costs in the market
The ideal way to achieve these objectives is by keeping a massive amount of money within all institutions and banks that take interest through various customer deposits. However, to lower the costs in the market, the Fed makes policies accordingly.
To fight price rises, the Fed try to raise the federal fund’s target rate. Otherwise, to fight off a collapse, the Fed can point to decrease it. The overnight loans are issue to different banks which cannot afford the costs, but it makes no impact on the international market rate.
2. Supervision and regulation of banks
The Fed manages and adjusts many banks and other monetary organizations to endorse permanency in the economic markets. The Board of Directors (BOD) of the federal reserve bank sets a specific set of policies, rule and regulations that have to be followed. Hence, the Reserve Banks make sure that other banks are abiding by all the required guidelines.
3. Offering payment services
The federal reserve was created to ensure that there is enough currency currently on the run. The electronic payments are verified with concentration. Also, various other transactions are processed by the Federal Reserve System including government’s payroll.
4. Maintaining financial stability
Along with all the above-mentioned tasks, The Fed also assures that the money of the state is protected and every organization is equally given its revenue to attain the broader goal i.e. financial stability.
How does the Fed accommodate the world’s economy?
Believe it or not, it is the central bank that manages the economy of the world in one way or the other. Some people also call it a “secret society”, but there is nothing secret about it because all the reforms and laws are clear and vivid.
Federal reserve aids in maintaining stability and economic independence for the USA. As a result, in the course of recent years, the Fed has attempted to retain the US money related framework stable and to relax the impacts of economic tragedies. Its administrations and choices influence our everyday lives in a roundabout way affecting everything from stock costs and financing costs on credits, to contracts, to the business rate and how a lot of purchasers are spent. Thus, even a little bit of mismanagement will have a significant impact on the international economic system.