The Federal Bank (Central Bank of the USA)

America’s central bank is the Federal Reserve System which comprises 12 separate Federal Reserve Banks; known collectively as the FED.

Official bank for the United States

It is the official bank for United States of America declaring monetary policy and overseeing fiscal matters for the United States. Other countries may use the currency for convenience, but they will not fall under US monetary policy.

Responsibility of the Federal Reserve

The Federal Reserve is responsible for the currency of the United States, the US dollar.

The US Treasury mints the coins and prints the notes. The Treasury then sells them on to the Federal Reserve System for the manufacturing cost of the notes and the face value of the coins.

The FED’s three main objectives for monetary policy are: to maintain price stability, to ensure optimum employment levels, and the moderation of long term interest rates. The 12 Reserve Banks are based in New York, Philadelphia, Dallas, San Francisco and St Louis not forgetting Atlanta, Boston, Chicago, Cleveland, Richmond, Kansas City and finally, Minneapolis; they are the operational arms of the central banking system and have the task of implementing monetary policy as set by the Federal Open Market Committee. The Reserve Banks operate superficially as corporate entities, but are in fact monitored and regulated quite strictly. The symbolic ownership by commercial banks is in practise negligible; especially from the point of view of distribution of profits. Much of the profit is deposited by the Board of Governors into the US Treasury, where it acts as a ‘nest-egg’ for the country. The Federal Reserve System offers readily available loans to government and safeguards the federal funds deposited within. The the Federal Reserve is ruled by the seven Board of Governor member who are put forward by the President of the United States and confirmed by Senate.

The Federal Reserve history

A brief history on how the Federal Reserve came into being: the USA needed a national bank to stabilise the economy after independence from Britain, so the first Secretary of the Treasury, Alexander Hamilton signed ‘The Bank Bill’. The First National Bank came into being in 1791 in Philadelphia (but with branches in other cities). When the Charter expired 20 years later the country had no national bank for a short time, but rampant inflation soon meant that in 1816 James Madison would sign ‘The Second Bank of the United States’ into being. After that charter expired there was no national bank for 40 years. Following a panic, when private banks stood firm to save the day as ‘lenders of last resort’, it was decided that there should be a permanent national bank to fill that place, to protect commercial banks against panics – this national bank could step in to keep customer confidence high. The Federal Reserve Act of the 23rd December 1913 created the Federal Reserve System, establishing a central bank for America.

Trading US dollars

In forex trading the importance of the US$ cannot be emphasised enough. For a long time the US dollar was the most stable currency due to the USA being the only participant in WW2 to not suffer economic damage and even today, the US dollars dominates with up to 60% of global reserves.

News about the US Central Bank, Federal Reserve

When you are trading US Dollar pairs, you should make sure to follow the news posts about the Federal Reserve.