The Federal Reserve is one of those ubiquitous topics that everyone knows about, but not a lot of people seem to really know about. But if you live in the United States or deal with global economy or currency, it’s a topic that should arouse your curiosity. Here’s what you need to know about the Federal Reserve:
The Federal Reserve Is the United State’s Central Bank
The Federal Reserve is comprised of a board of governors in Washington D.C. and twelve regional Federal Reserve banks which are spread throughout the country. Think of it like the Supreme Court-– there is a system of lots and lots of courts, but they all lead back to the Supreme Court as its head. The Federal Reserve is kind of like that because all banks do business with the Federal Reserve.
The Federal Reserve Exists to Keep Things Moving
The Federal Reserve exists to make sure that the American economy has stable prices, that everyone has a job who wants one (even if they aren’t saving money), and that the economy is constantly moving in a positive direction. These three goals drive all of its decisions and actions. Here are four important facts about how the United States Federal Reserve reaches these goals:
- The Federal Reserve monitors the amount of currency circulating in the United States. The Federal Reserve keeps an eye on how much cash and change is rolling around out there. This keeps the American dollar from experiencing sudden and dramatic rushes or inflation or drags of deflation.
- The Federal Reserve watches over private banks. The Reserve keeps private banks in check using a series of regulations, and each rule attempts to make the nation’s banking system safer. They do this so that people will have faith in their banks, and know that if they put money into a bank on Monday, they will be able to get that money out of the bank on Friday, if they so desire.
- The Federal Reserve determines the amount of credit that is available to the public. The Federal Reserve does this to try to make the American economy stable. And stability is a good thing. If there is a time when the United States seems to be doing well, but it’s more of an illusion than a reality (think the 1920s), that’s not good. It’s not worth a short jolt of oh-my-gosh-everything-is-awesome, if it’s going to allow people to put themselves in jobs that are going to go away, homes they won’t be able to afford, or behind the wheel of a car that is going to be repossessed.
- The Federal Reserve sets reserve requirements for banks. When you put your money into a bank, some of it goes to create loans for other members at the financial institution. However, the reserve requirement sets the laws about what amount of your money the bank has to have on their premises.
What do you think is the most important role of the Federal Reserve?