We always hear and read about FED and almost each big nation is talking about the effects of FED. Who does not know the Fed? The Federal Reserve System, known as the acronym of the Fed, is well known, even internationally. Not only affects the founding countries, but the policy of the Fed is able to influence the world economy. So strong and mighty. How can? What exactly is the Fed? How does it affect the economy of other countries? What is FED or federal Reserve system?
Definition of the Fed
- The Fed is the central bank of the United States (US) which consists of three main entities namely the Board of Governors,
- 12 regional central banks or the Federal Reserve Banks,
- and the Federal Open Market Committee.
There is one interesting thing about this Fed. Although it is a US central bank, the Fed is not a government-owned institution. One of the Fed’s main entities, namely 12 Federal Reserve Banks is owned by private banks.
How was FED established?
Starting from anxiety and panic over the financial crisis that occurred in America since 1907, prompted a group of six people to hold secret meetings and discussions at the Jeckyll Island Club in 1910. The meeting discussed about plans to reform the country’s banking system. Understandably, the financial crisis that occurred had a negative impact on economic activity at that time.
Not in vain, the plans discussed eventually became the basis for the Federal Reserve System.
Current workings of FED:
Three years since the secret meeting held by a group of six people, precisely on December 23, 1913, the Federal Reserve System was formed and its legislation was signed by President Woodrow Wilson. The Federal Reserve system is a base for the US public policy by carrying out the main tasks of regulating interest rates and availability of bank credit, setting the country’s monetary policy, overseeing and regulating financial institutions, and providing financial services for US government depository institutions and also foreign official institutions.
Main structure of the Fed
As a central bank that guards the principles of the US economy, the Fed has a very complex task. But this is not a solo working module because the Fed has three main entities that support it. Following is the structure of the Fed’s main entities.
Board of Governors
The Board of Governors is the main entity or key entity occupying the top position in the structure of the Fed. This entity is an independent form of central government institution. In its management, the US President has the authority to appoint seven members of the Council, including for main chair chair and deputy positions, which are later confirmed by the US Senate.
The term of FED
The term of office of members of the Board of Governors is quite long, namely for 14 years. However, if the term of office has ended, then it cannot be reappointed. While for the chairman and deputy chairman of the Board of Governors, the term of office is relatively short, namely 4 years, but can be reappointed to occupy the same position if the term of office has ended. The main task of the Board of Governors is to oversee the Federal Reserve System.
System that makes the Fed mighty
Although the main entity consists of private banks, the Fed has a major influence on the country’s economy, not only the US but also other countries around the world. This institution is so powerful that its services and decisions can influence the lives of the international community.
What makes the Fed seem to have extraordinary powers that make it so powerful in the eyes of the world? There are many factors that are at the core of the Fed’s might.
The Fed as a collection of private banking cartels is able to transform into the US central bank which is in the developed country with the largest economy in the world. As a central bank, of course the Fed becomes an important institution holding the highest authority in determining policy in the country’s financial sector.
The Fed’s control of the US economy legitimizes the strength of the financial institutions. Despite having experienced an economic recession, but until now the US is still listed as the country with the highest rate of economic growth in the world. This shows that the US is the most powerful economy in the world. And it holds much power to affect the economies of other countries as well.