Sunday, August 11, 2013

US Federal Reserve System

us federal reserve systemThe Federal Reserve System is simply the central bank of the United States of America, which has the special purpose of administering and formulating monetary and credit policies respectively. However, this institution was established by the congress thus making it an independent body. This was because of various reasons among them, for instance in 1913,the general economy of US had grown successfully at home, as well as abroad. Because of this, it unconditionally required an effective, well-managed and flexible system of banking. In this manner, it led to an establishment of the Federal Reserve act of 1913, which conceptualize the institution as the central banking authority of United States of America.

Nevertheless, this institution is playing a vital role in the economy, and it performs a number of functions such as; it has the maiden mandate to control, and conduct the monetary policy of the country, it works all round the clock to ensure that the financial system of America is stable. Nonetheless, it plays the role of checks and balances in the overall financial system. This normally happens when the central bank regulates the lending of cash by other banks across the country. Additionally, Federal Reserve System literally supervises as well as regulates the banks and ensures the credit rights are well protected. Particularly, it regulates and determines the interest rates; as such, it makes sure that the citizens are not exploited, more so this happens because the banking industry is not a monopoly version of business.

Furthermore, the US Federal Reserve offers financial services to the general public, financial institutions such as the banks, micro finance institutions, foreign financial institutions, and lastly the US government enjoys financial services from the Federal Reserve. The government can borrow loans from the Federal Reserve whenever they have projects that require a lot of money. In addition, this institution has the mandate to issue federal bank notes; as such, it also supplies the American citizens with the paper money.

Nevertheless, the system has a special way to deal with the monetary policy as such, they have a certain committee, which seeks to reduce the deviations of inflation in the economy. Moreover, the reserve system plays a greater role in determining the employment levels in the country. In conclusion, it is important to acknowledge that the Federal Reserve is a vital entity in the US economy and needs a proper management in order to have an effective economy.