The Impact of Banking Policy on Trade and Global Stability

By Neil H. Ashdown | Go to book overview

Chapter 3

Banking on the Fed for a Healthy Economy

INTRODUCTION

Banking functions have financed domestic and foreign investment and international trade since antiquity. However, since banking assets have grown increasingly dependent on the stock market, the values of banking assets are less stable, thus lending more volatility to an already unstable global economy. The Federal Reserve System was established to regulate the flow of money and credit in the economy and provide stability. Central banks are the lenders of last resort and can provide credit through a number of mechanisms when private lenders have stretched their lending capacities to the limits due to reserve requirements.

Banking functions, whether actually provided by a bank or not, are at the very core of the modern global trading system. It is essential, then, to understand how banks work in order to understand trade.

When gold was still used as a means to do commerce with other countries, ships of gold would cross the Atlantic to purchase and sell goods. Once the Federal Reserve was created, gold was often moved from one country’s vault to another’s, as can still be witnessed today in the gold vaults of the New York Federal Reserve Bank when foreign central banks buy and sell gold. This means of doing commerce was hardly as convenient as the electronic transactions that are performed today. Besides the problem of hauling

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The Impact of Banking Policy on Trade and Global Stability
Table of contents

Table of contents

  • Title Page iii
  • Contents ix
  • Acknowledgments xi
  • Chapter 1 - Introduction 1
  • Chapter 2 - Institutional Versus Realist Models 7
  • Chapter 3 - Banking on the Fed for a Healthy Economy 27
  • Chapter 4 - The Cultural Evolution of Institutions in the United States 55
  • Chapter 5 - Monetary Policy, Foreign Exchange, and Trade 79
  • Chapter 6 - Final Thoughts 109
  • Appendix A 117
  • Appendix B 123
  • References 133
  • Index 139
  • About the Author 145
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