Contribution Of The Us Federal Reserve Finance Essay
The U.S Federal plays a critical role in the U.S. payments system, no matter as an overseer but also as a provider of wholesale and retail payments services .Besides, it has a substantial responsibilities in the area of consumer protection, including rule-writing and as well as enforcement. In addition to that, it helps to promotes financial stability; and together with other agencies, it supervises both large and small banking organizations.
2.9.1 Contribution to economic
U.S Federal Reserve is the most influence banking system in the world due to the power influence of United States. Therefore, the policies which carry out by Federal Reserve are the main guideline for others to follow. It has been a contribution to many countries as they serve as guidelines from the aspect of economy. The Federal Reserve System is set up to serve its proprietor like the government of United States or Congress and other member banks. Most of the banks are compete with the public interest because they want get the attention from public. The main reason of the banks antagonistic to other bank for the public interest is banking cartel is happen in the Federal Reserve System. Banking cartel is useful and give advantages to the all the banks. Banking cartel gets the power to restrict competition because bankers can earn more profits from the people expense. It goes from people's expenses or saving to theirs. In addition, there is a great opportunity that the public faced lose through varies ways and after that nothing will belong in their sides.
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United States Federal Reserve creates high employment in country, whereby it contributes to the economy of a country. When there is a high employment in a country, thus, it has a positive relationship with the real gross domestic product in a country. Thus, it shall maintain long run growth of the economy because it can help the economy promote effectively and successfully and achieve the goals. The goals which have been set are maximum employment, price stability, and moderate long-term interest rates. Besides, they have a responsibility to maintain a sustainable growth, and stable prices in an economy. There are few duty of the United States Federal Reserve which are maintained a stable rate for the economy growth, smooth out the business cycle and established to stabilize the economy.
In the United States, the Federal Reserve requires the banks carry the activities for the bank run smoothly. To smoothly the bank run, all banking institutions are required to hold the depositors' money in as reserve. The amount of reserve is depending on the required reserve ratio which has been set by the Federal Reserve. Because of the reserve is a fraction of the depositor's saving so the activities are named as fractional-reserve banking. Therefore, United States Federal Reserve takes appropriate actions in order to protect the economy. After carry the bank run's activities, the banks get good result and reputation. It encourages most banks invest the greater part of their depositors' money. During the economy crisis, there a lot of bank's customers want to withdraw their deposits and savings. At the same times, the bank will face shortage of money and it will need the help from other financial institution to continue its business to avoid bankrupt. Economic problems and multitude of social can by lead by the bank run's activities. Thus, in order to prevent bank runs, money supped is needed for the country. Elastic currency can be defined as the capacity to increase the money supply, indeed it can contract it. The Federal Reserve defined the elastic currency as the currency which control by the central monetary authority. In addition, it can be use to increase or decrease the amount warranted depend on the economic conditions.
United States Federal Reserve clears the uncertainties involved in an economy. The policy choices seem reasonably straightforward, but major notable uncertainties are from the decisions make by the monetary policy makers. The monetary policy makers are partially known about the growth of aggregate demand and the real situation of the economy. Hence, the policy makers need more information to create a new monetary policy such as the information about expenditure, manufacture, and prices. In addition, the monetary policy makers want to determine and assess to most appropriate monetary policy, they need make the decision which depend on approximate economic variables. Other than that, it is common to have uncertainties in a given adjustment of the federal funds rate because the Federal Reserve realize that the federal fund rate can influence the growth in aggregate demand which is involved the timing of impact and the overall magnitude. At this moment, the United States Federal Reserve plays their role in contributing by introducing economic models that can give the easiest ways to get the information which related respond of economy. However, the rules of thumb always face the statistical error cause the monetary policy maker cannot get the accurate figure.
In addition, the Federal Reserve had been creating a useful system which can use to stabilize the economy and help the bank to carry the activities. The system is name as check-clearing system. Because of some of the banks refused to clear checks from during times of uncertainty in an economy, so they will try to use the check-clearing system. Congress planned to reduce the economy crisis and financial crisis that had happen occasionally. Economy crisis and financial crisis can easily worsen the nation and the nation get the financial panic likes The Panic 1907. To ensure all the check- clearing systems are function well, the Federal Reserve System has been given the right to set up a countrywide check-clearing system. The check-clearing systems can also be use to provide elastic currency to ensure currency exchange carry smoothly. The check-clearing system is an efficient and fair check-collection system. During unusual circumstances involving a national emergency, the Federal Reserve possesses the authority to expand credit to financial market and depository institutions. The Federal Reserve always pays attention in the amount of credit because the figure of credit can bring a lot of serious adverse effects and consequences on the nation's economy.
2.9.2 Contribution to social
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The United States Federal Reserve on the other hand also pays attention in contributing and concern to the way of life and welfare of people in a community. They play important roles such as to inform the public about the advantages of low inflation and the need to give priority to this objective. It must be said that in the past years, although the Federal Reserve had many objectives to reach, the main accent was set on price stability maintenance. In addition to that, the United States Federal Reserve generates employment in a country's economy to make the citizens better off. An increase in interest rates that benefits savers could also price a new home just out of a family's reach or make a manufacturing firm's modernization plan too expensive to undertake.
However, it is deniable that some policies from the United States Federal Reserve might bring harms to the public. As mention early, government of the United States is the owner of the Federal Reserve System. Hence, the Federal Reserve has responsibilities to serve government as well as possible. When there is leakage of money in the economy but the Federal Reserve need a great amount to settle the national debt, the Federal Reserve will increase the nation or community's tax rate. Because of increase the taxes rate, the nation need to pay higher taxes to government in order to settle the national debt which printed by the Federal Reserve and loaned to the government. These have caused the nation pay more money on taxes to the Federal Reserve System. For instance, the taxes of nation can be income taxes. The income tax is one of the important sources of fund to the government. In addition, banks need financial from the Federal Reserve and government to survive. Besides, public tax income money can also use to save the system
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