Monetary Policy and Investment Opportunities

By Laura S. Nowak | Go to book overview

1
The Power and Structure of the Central Bank

The power and structure of the central bank of the United States are quite different today than they were when the Federal Reserve System was established in 1913. The Federal Reserve System of the United States has taken on many more responsibilities and powers than were originally granted by Congress. Some of the powers of today's central bank came about by subsequent legislation and some by default.

When the Constitution of this new nation was written in 1789, the power to coin money and maintain its value was removed from each of the thirteen colonies and given to the federal government. There was no central bank created to carry out the fiscal functions of government and to maintain the value of the currency. Other nations at the time had central banks. 1 Thus, Alexander Hamilton, the first secretary of the Treasury, prevailed on the newly established administration to set up a banking institution to be the fiscal agent of the government. Its major responsibilities would be to receive import-tax payments, make disbursements on behalf of the government, and create more money and credit for the new country by issuing bank notes and making business loans. It would also be given the ability to raise money, for government expenditures by underwriting and selling U.S. government bonds. 2


THE FIRST CENTRAL BANKS IN THE UNITED STATES

The first attempt at central banking in the United States occurred with the establishment of the Bank of the United States in 1791 in Philadelphia,

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