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The following short article is about the central bank of the world’s biggest economic giant: U.S.  

The central bank of the United States is often called “The FED”. Briefly, the Federal Reserve Act signed into law by President Woodrow Wilson in 23rd December of 1913.  The FED was created by Congress and it was authorized to print money to manage the stability of the economy. Basically, Congress has tasked the FED by two basic functions which are to maximize employment and keep inflation low.

The structure of the system is designed as follows;

The Board of Governors;
Governors and The Chairman of the Federal Reserve Bank are appointed by the President of the United States. And They confirmed by the Senate for a 14-year term. One term begins every two years but a member who serves a full term may not be reappointed by the President. The Board of Governors has seven members including Chairman.

Twelve Federal Reserve Banks;

The Fed also includes 12 regional Federal Reserve Banks located in cities through the country. These Federal Reserve Districts serve as the central banks operating arms independently. But according to the law, They are under the supervision of The Board of Governors.

  • Reserve Banks hold the cash reserves of depository institutions and make loans to them.
  • They move currency and coin into and out of circulation and collect and process millions of checks each day.
  • They provide checking accounts for the Treasury, issue and redeem government securities.
  • They supervise and examine member banks for safety and soundness.

Federal Open Market Committee; “Referred to as FOMC”

National economic decisions are taken by the Federal Open Market Committee in the FED organization, which includes all seven members of the Board of Governors and presidents from the reserve banks. The Committee meets in a predetermined time frame regularly every 6 weeks to discuss the economic conditions and make decisions for the monetary policies. And they meet 8 times a year to set the federal funds rate.

What is the purpose of the Federal Reserve System?

According to the Federal Reserve Law, the Fed has been assigned four primary tasks.

  1. The FED determines the country’s money supply and interest rates. The FED sets a federal funds rate that banks use to borrow from each other which all other interest rates are set, such as the prime rate.
  2. The Fed supervises commercial banks and other financial organizations to make sure that they are financially sound. And Also, The Fed takes measures to protect the rights of customers.
  3. The FED maintains the stability of the financial system when crises and social events threaten the wealth of the whole country.
  4. Providing certain financial services to the U.S. government, U.S. financial institutions, and foreign official institutions, and playing a major role in operating and overseeing the nation’s payments systems.

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