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The Federal Reserve System-How Does It Work?

Updated on October 19, 2011

The Federal Reserve System-How Does It Work?

The Federal Reserve System-How Does It Work?
The Federal Reserve System-How Does It Work? | Source

The Federal Reserve System-How Does It Work?


The Federal reserve system is also known as the Federal reserve which is the central banking system of the United States of America and the Federal reserve system was set up a 1913.  Overtime the roles and responsibilities of the Federal Reserve System had changed me have been renewed.  Some of the changes that occur with the Federal Reserve System were the Great Depression.  The main duties of the Federal Reserve System of today is to supervise and regulate the banking institutions of America.  They in turn try to stabilize the system of finances and provide monetary services to deposit or in institutions such as the U.S. Government, and foreign institutions.  We have heard a lot about the Federal Reserve System lately on the news and on the Internet.  This is just a summary of what they do and why they do it.

The structure of the Federal Reserve System is composed of an appointed board of governors that the president appoints.  The Federal open market committee or FMOC oversee the banking industry a better responsible party for setting monetary policy.  It consists of seven members of the Board of Governors and 12 regional bank presidents are only five presidents can vote in the one given time.  According to the information I read about the Federal Reserve they base their decisions independently without anyone else involved in the executive and legislative branch of government but its authority is derived from the U.S. Congress and is subject to Congressional approval.  The member of the Board of Governors includes chairman and Vice Chairman who are chosen by the president and confirmed by Congress; remember these are independent of each other.

In 2010 the Federal Reserve made a profit of $82 billion and transfers 79 billion dollars to the U.S. Treasury.  That is quite a lot of money for new independent operation not dependent on the government as the Federal Reserve describes itself.

So what is the central bank in the United States was that mean?  In 1690 the Massachusetts Bay Colony became the first initial state to issue dollars.  But while after that time dollars were printed by the banks for spreading their own money as well.  The dollar was demand for money in the Colonies was due to the scarcity of silver and gold coins which have been the primary means of trade, paper currencies were used to pay for their expenses.  Therefore more banks needed to print money paper money at this time our life and the 1600s.

The primary purpose for creating the Federal Reserve System was to avoid banking or money and problems with panic.  The other reasons were to create a more effective device for banking in the United States.  In its role of the Central Bank of the United States the Federal Reserve banks to assure the safety and efficiency of payments within the system just as an individual would keep their own bank account.  The Federal Reserve has their own way of keeping up with their own bank account. During the year of 2008 the bureau of engraving and printing delivered $7.7 billion in notes at an average cost to print these notes at   6.4 cents per note.

The central banking system is very complicated; I really wonder how many Americans understand it completely as I read through the banking system on the Internet it’s confusing to read.  There are too many bosses, and a worn out dollar.  And try and understand the Federal Reserve System, you definitely have to have a lot more financial knowledge that I have.  To ne it sounds like there are too many cooks in the kitchen the structure is complicated as is the policies.  But with congressional parties at odds with each other all the time, how would anyone understand this mess. The Federal Reserve banking system has failed or is not working.  Therefore if it is working we sure are being told a different story.  Let us hope we can keep the American dollar and not have to change over to the Chinese dollar.  But whatever happens is how this system works, and none of us may ever know why or how the system does not seem to be working.


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    • tomy101 profile image

      Christopher Hyer 5 years ago from Midland, Texas

      Good Point and very intelligent answer, Thank You

    • Chris Kross profile image

      Chris Kross 5 years ago from Dallas, TX

      As an answer to your title - it doesn't work. The Fed is supposed to ensure maximum employment rates and stability in prices. It actually does neither.

      The only reason central banks, like the Federal Reserve, exist is to facilitate the unscrupulous fraction reserve lending scheme.

      If the Fed didn't exist, banks couldn't loan out more than they held. As it stands, banks can loan anywhere from 9 to 100 times the amount of money they hold.

      In the case of the housing bubble, the banks had a bunch of bad loans leveraged up. The credit bubble would have burst, if we had not bailed them out.

      Of course, we should have let them fail. They made bad investments. No one bails me out when I make a bad trading decision, so why did we give these rich bankers a $700 billion TARP bailout?