The Federal Reserve is also known as “The Fed” they play a big role in our economy. But who and what is the Federal Reserve? What is the main purpose of having the Fed around? Where did they even come from? The Federal Reserve came at the turn of the twentieth century, but only after the central banking that was founded in the seventeenth century.
Central Banking
“The term central bank is used to describe the authority responsible for policies that affect a country’s supply of money and credit.” (Michael D. Bordo) The central bank usually deals with an open market operation, discount window lending, changes in reserve requirements such as interest rates and monetary base, and to achieve important policy goals. Price stability, stable real economy, and financial stability are three main goals of modern monetary policy. Price stability, or is also known as stability in the value of money means maintaining a sustained low rate of inflation. Having a high employment and high and sustainable economic growth is known as a stable real economy. Financial stability means to have an efficient and smoothly running payment system and the prevention of financial crises.
Central banking was around in the seventeenth century, the first central bank was the Swedish Riksbank. It was established in 1668 as a joint stock bank, it was charted to lend the government funds and to act as a clearing house for commerce. The most famous central bank of the era was founded a few decades later in 1694 which was the Bank of England. The Bank of England was a joint stock company to purchase government debts. After the Bank of England was made other banks were built for the same general purpose of purchasing government debts. Yet some banks were established to deal with monetary disarray like the Banque de France (founded by Napoleon 1800). “Banque de France was made to stabilize the currency after the hyperinflation of paper money which occurred during the French Revolution and to aid...