The 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.
