The Federal Reserve System

What is the importance of the American federal reserve system and to what degree has it been beneficial to the stability and growth of the American economy?

Many Americans, since the foundation of the United States, have been circumspect of a banking system that puts its power in the government’s hands. Despite this, Alexander Hamilton, the first secretary of the Treasury, put forth great efforts to establish the First Bank of the United States in 1791, and the Second Bank in 1816. Then, in 1913, the Federal Reserve Act was passed, creating a Federal Reserve System---allowing the United States Central Bank to issue uniform currency in the form of Federal Notes---and created twelve federal reserve banks across the nation. Together, these advancements

This has led to growth in the overall economy. After the Revolutionary War in 1775, the United States Government began issuing continentals, the first paper money. However, as the war dragged on, inflation became a major issue and this led to immense debt. By 1780, continentals only retained 1/80th of their original value, making them nearly worthless (The Early Paper Money of America). Evidently, the economies of the American colonies needed to be more federalized. Ultimately, delegates of the Constitutional Convention agreed to prohibit states from issuing their own currency, and gave Congress the power to borrow money. Then, in 1791, in order to deal with the deteriorated economy and war debt, the Bank of the United States was established, modeled after the Bank of England. This led to the stabilization of the American economy following the conclusion of the revolution, thus evidencing the fact that a federal reserve system is essential to a post-war economy.

This was demonstrated again after the War of 1812. By 1815, the United States found itself in massive amounts of federal debt, as most state-chartered banks were still issuing their own currency. For the second time, the United States found itself in a situation in which its economy clearly needed more federalization, and so the Second National

Since the formal establishment of the Federal Reserve System in 1913---thus culminating Hamilton’s original vision---the United States has been able to provide a safer, safer, more flexible, and more stable monetary and financial system. It does this through fulfilling its three primary functions: Monetary Policy, Banking Supervision, and Financial Services. The Board of Governors, appointed by the President of the United States, oversee any action regarding monetary policy, analysing domestic and international economic conditions, and lead committees that study current issues that arise in current day economies. Furthermore, the national network of twelve Federal Reserve Banks exists to handle the Treasury 's payments and assist with the Treasury 's cash management and investment activities. They also conduct research on regional, national and international economic issues (The Structure and Functions of the Federal Reserve System). This great breadth of this dynamic system ensures the general stability, uniformity, and solvency of the American economy.This validates Hamilton’s belief in the necessity of the federal system to help the public good. In today’s society, the Federal Reserve System plays the same roles in the economy that it did when the First and Second National Bank were established; however, it also takes on many more responsibilities in this economy in order to promote things such as economic growth, safety of