The Federal Reserve System: Closer Look

In this role, the Federal make schema was expected to furnish additional funds to subdivision banks during periods of financial crisis.

3. The Federal replacement body was to establish and melt down an efficient carcass for the clearing and collecting of checks. This payment system was to be operational nationwide.

4. The agency was expected to add muscle to bank supervision in the country. Although the Federal stand-in organisation was charged with specific responsibilities with respect to bank supervision, its responsibilities were limited, and the agency was not the exclusive federal bank supervision agency.

From the beginning, the American g everywherenmental leadership officially recognized that the purposes for which the Federal maintain System was formed were, in fact, elements of the broader economic and financial objectives of the country (Wallich and Brady, 1988, p. 414). Thus, over the years, the Federal replacement System's mandate has been broadened to include (1) the maintenance of economic perceptual constancy in the country, (2) the maintenance of high levels of employment, (3) the maintenance of stability in the purchasing power of the dollar, and (4) the maintenance of a fair(a) balance of payments with respect to international transactions (Board of Governors, Federal support System, 1990, p. 7). The mandate established by the Congress for the Federal Reserve System, in effect, establishes the agency's rudimentary financial policy objectiv

The quasiindependence of the Federal Reserve System insulates the nation's monetary policy to some extent from politics. Placing the Federal Reserve System under the control of the prexy would politicize monetary policy to the detriment of the nation.

The use of automatic rules contrasts with the development and writ of execution of actions by an independent monetary indorsement on an ad hoc basis, or by similar actions on the part of a cabinetlevel executive department.

This latter approach is the figure of monetary control practiced through and through the Federal Reserve System as an independent monetary authority (Epstein, 1988, pp. 247255).

The uncertainty of the desirability of having an independent monetary authority remains volatile. Those opposing an independent monetary authority for are, at present, in the minority. twain the Reagan and Bush Administrations proposed changes to the Federal Reserve Act that would provide the President with greater political control over the actions of the Federal Reserve System.

In the earlyyears of the Federal Reserve System, the basic policy objective was the preservation of the value of the dollar through the protection of the gold standard (Anderson, 1985, p. 24). This policy mandate was bit by bit expanded to include the maintenance of reasonable interest localize levels, safeguarding the quality of credit, and the prevention of an excessive use of credit for non juicy purposesespecially speculation.

Friedman, M. (1962). Should there be an independent monetary authority? In Yeager, L. B. (Ed.). In search of a monetary constitution. Cambridge, momma: Harvard University Press, pp. 173194.

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