The History and Development of the Federal Reserve System

Abstract

The Federal Reserve Act will and has proved to be one of the most constructive contributions ever made by Congress.(2) It is not in its final state, but as new problems and situations arise, substantial changes will have to be made in order to keep abreast with new demands. It will be the bankers of the United States upon whom the future of American banking will fall. They must plan and organize, not with an eye on tomorrow but for a larger future and for the benefit of all.(3) Prior to the Federal Reserve Act there was no central organization to protect the banks or any methods of converting assets into cash. With the development of the Federal Reserve System, the country was divided into twelve central districts with a Reserve Bank in each district.(4) The two main functions provided for by these central banks was first, to provide a means of meeting the country's Gold requirements, and second, to provide the machinery for turning member bank's assets into credit or cash. In recent years the most important problem confronting the Federal Reserve System has been in connection with the war. A great amount of planning was necessary in order to finance the war effort.(5) It was necessary to maintain a stable market in which both the Government and industry could receive credit promptly and at low costs. This was accomplished by the Federal Reserve System by purchasing Government obligations at par, by low money rates, by arranging credits for war production and by restraining the use of credit for speculation in securities. This left the country in possession of money far greater than it needed in peacetime and almost in a state of inflation.(6) [From Conclusion]