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The Federal Reserve (FED): A Case Study

673 Words3 Pages

First, what is a Central Bank at all and what is its role? As the world developed, so did the banking system – and the once widely used barter system was replaced by the monetary system. In order to have a strong and prosper economy, the country has to use certain tools such as the monetary and fiscal policy. Monetary policy is primarily concerned with the management of interest rates and the total supply of money in circulation and is generally carried out by central banks such as the Federal Reserve. Therefore, the main function of central banks is to regulate transactions and the exchange of goods and services. Let´s just have a short reminder of what is fiscal policy, and then let´s focus on the comparison of the “US Central Bank” – FED …show more content…

FED was established in 1913; while CBB&H was establish right after the war had ended and the country started to reconstruct itself - in 1997. The FED organizational structure is quite complicated as there are not 2 headquarters, but 12 of them. So, long story short - there are seven governors who are appointed by the President, and confirmed by the Senate, for 14-year terms on a rotating schedule. The NYC governor is the main actor in the play. How are they chosen in CBB&H? According to the Law on CBB&H, the Governing Board consists of five persons that are appointed by the BH Presidency for a six-year mandate. The Governing Board appoints one of its members as …show more content…

In Bosnia and Herzegovina the Central Bank does not have the power of controlling the market, instead it is playing the role of an exchange bank. Why am I referring to CBB&H as an exchange bank? Simply because it converts Euros (€) into Bosnian Convertible Marks (BAM). Central Bank of Bosnia and Herzegovina maintains monetary stability by issuing domestic currency according to the Currency Board arrangement (1 BAM: 0.51129 EURO) with full coverage in freely convertible foreign exchange funds under fixed exchange rate 1 BAM: 0.51129 EURO. This has its positive and negative aspects. The positive aspect of it is that the exchange risk is eliminated. The negative aspect of it is that as BAM is packed to the €, so that the CBB&H is not allowed to print money and is influenced by the € fluctuations against other/third currencies. The table below compares FED and CBB&H in the best possible way according to my research.

FED VS. CBB&H

FED CBB&H
Clear checks Yes It can only assist banks
Issue new currency and remove damaged currency Yes Cannot issue new currency, but can remove damaged currency
Administer and make discount loans to banks in their districts Yes

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