What is the Federal Reserve? Do we need it?

| January 14 2013
Christopher Cook

We are not, at this juncture, taking a position on ending The Fed, or on the gold standard, or monetary policy generally. That said, this video provides an excellent primer on what The Fed does and an interesting perspective on other potential ways in which those same functions might be accomplished.

What would it mean to “end the Fed”? Professor Larry White says that in order to know the effects of such a measure, we must first understand the role of “the Fed”.

The Federal Reserve is the central bank of the United States and the institution at the center of the nation’s monetary and banking systems. It has five main functions, including controlling monetary policy. Could the United States even survive without the Federal Reserve?

In order to answer this question, Professor White examines countries throughout history that did not have an established central bank, including Scotland, Sweden, Switzerland, and Canada. Hong Kong, he points out, still does not have one. So who performs the functions of a central bank in these countries?

Professor White cites private institutions, including clearing house systems, banks, and financial companies, as the main actors in the monetary systems of countries without a central bank. Ultimately, Professor White concludes that the Federal Reserve is not necessary. Evidence shows that nations can survive without a central bank. What the Federal Reserve does well can be done even better by private institutions, and the institution is capable of serious errors.

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