In: Economics
What changes in the organization and activities of the Federal Reserve Board would you suggest to improve operations? Should the Fed be more or less powerful? Does having a regional banking system instead of one central bank make any difference in the economy anymore? Which of the monetary tools - Open Market Operations, Discount Policy and Reserve Requirements - seems most effective?
Federal Reserve is governed by the board of governors and has
one Federal Reserve bank in each of the 12 federal Reserve district
of the USA. The Federal Reserve should be awarded more statu-tory
authorities and include independent economists and scholars on
board to get independent views about the policies. It will help the
Fed to take better decisions. The Federal Reserve can also work in
alliance with the FTC to regulate the capital market also. It will
give more credibility to the financial system. Hence, the Federal
Reserve should be more powerful and independent of any kind of
political influence.
It makes a difference as regional bank system makes regional bank
to focus upon the regional interests and it can be nullifying the
action of each other banks' initiatives. Hence, the Federal Reserve
acts as the central bank will all the benefits of the regional
banking system as there are 12 federal reserve banks in each of the
federal reserve districts to report, supervise and regulate the
financial system of the each federal reserve district. Here, one
central bank as the Federal Reserve brings policies that complement
each other rather conflicting each other.
We have regional banks, but regional banks report to the central
bank. It becomes very difficult to have one bank who looks after
the whole USA economy. Hence, 12 regional federal reserve banks are
established in 12 federal reserve district, reporting to the
Federal Reserve board of governors.
These regional banks give inputs to the Federal Reserve and the
central bank prepares policies. It works well as it does not only
give different services to the bank and government, but also it
regulates the whole banking system. It is the efforts of the Fed
that the USA economy has now recovered from the recessionary impact
of the 2008 crisis.
Federal Reserve most frequently uses open market operation via FOMC
and Federal Reserve bank of New York to achieve the money supply
target. Frequent change in Federal fund rate or discount rate can
bring volatility in the economy.