INDEPENDENCE OF THE FEDERAL RESERVE SYSTEM
This research considers the issue of the independence of the Federal Reserve System. The focus of this research is on the advantages and disadvantages of making the Chair of the Federal Reserve System a member of the presidential cabinet.
Before one may effectively address the question of the independence of the Federal Reserve Board, one must gain an understanding of why the Federal Reserve was created, what the agency is expected to do, and why the Federal Reserve was created as a quasi independent agency within the American governmental structure. The creation of the Federal Reserve Systems dates to the early years of this century.
Why the Federal Reserve System Was Created, and What the Is Expected To Do
A severe financial crisis occurred in the United States in 1907. Unfortunately, the crisis was just the latest in a long line of such crises. The crisis of 1907, more than most, however, exposed severe weaknesses in the country's national banking system (Kidwell and Peterson, 1992, p. 124). The creation of the Federal Reserve System through the Federal Reserve Act of 1913 was intended to correct those deficiencies. The Act had four stated goals, as follows:
1. The Federal Reserve System was to act as the central monetary authority for the country. In this capacity, the agency was expected to expand and contract the country's money supply according to the needs of the economy. 2. The agency was to act as a lender of last resort. In this role, the Federal Reserve System was expected to furnish additional funds to member banks during periods of financial crisis.
3. The Federal Reserve System was to establish and operate an efficient system for the clearing and collecting of checks. This payment system was to be operational nationwide.
4. The agency was expected to add vigor to bank supervision in the country. Although the Federal Reserve System ...