Does the U. S. need the Federal Reserve? Why? or Why not

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Does the U. S. need the Federal Reserve? Why? or Why not

Does the U. S. need the Federal Reserve? Why? or Why not

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Please submit a 5 page paper based on: “Does the U. S. need the Federal Reserve? Why? or Why not?” Please justify your answer. Cite at least four sources. You may use your text as one of the sources. Your paper will be also graded based on your use of MLA style.

The United States needs the Federal Reserve. Federal Reserve also known as Federal Reserve System, is the US central banking system that consist of 12 Federal Reserve banks (Meltzer 132). The Federal Reserve board coordinates the activities of this banks that are located in twelve districts of the United States. Every Federal Reserve Bank has its board of directors.  The system was established to regulate the economic factors to ensure a stable economy especially when faced with financial panics. The American US payment system is the largest in the world and thus it calls for a strict, efficient and effective controlling system. The Federal Reserve maintains the stable economy through the provision of ready reserve of the liquid asset as well as allowing the expansion and contraction of the economy. The importance of this banking system cannot be overlooked. The Federal Reserve System renders the following very instrumental and important functions in as far as the economic and financial stability of US economy is concerned.

Settling and clearing interbank payments: Federal Reserve assists in ensuring efficient payment system in the United States. Payment and clearing is achieved by the Federal Reserve through accepting the checks issued by different banks and paying them to the relevant bank. This function is facilitated electronically through Federal Reserve wire network (Fedwire). Federal Reserve wire network enables deposit taking financial institutions within the United States especially the banks to transfer gross amount of fund. This is done in conjunction with clearing house interbank payment system which is a privately owned clearing house. Clearing of interbank payment is very important as it enable banks to draw checks that can be used in other banks and financial institutions. Settling payment on the other hand allows interbank transfer of fund which is very vital in facilitating business and liquidity of the economy

According to (Axilrod 173) Federal Reserve is also concerned with Formulating and implementing monetary policies. Monetary policy is the process initiated by the Federal Reserve that aims at controlling the currency supply in the economy. This is achieved through regulating the interest rates. Currency supply regulation is attained through open market operation. Open market operation is the act of the Federal Reserve on behalf of the government to issue government treasury bills and bonds. The monetary policy helps to regulate the rate of unemployment, inflation and economic growth in the economy. This is achieved through either expansionally or contractionally monetary policy by the federal system. Expansionally monetary policy increase money supply in the economy increasing the rate of employment. This is achieved through reducing the interest rates charged on domestic and commercial loans. Contractionary policy on the other hand, decreases money supply thereby decreasing the rate of inflation which is attained through increasing the interest rate which in return discourages both domestic and industrial deficit units from borrowing from the commercial banks. Federal Reserve plays a very important role through monitoring the implementation of this policy.

Formulating and implementing……….

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