A Very Short Story Of US FED OR Federal Reserve Banking System

A Very Short Story of US FED or Federal Reserve Banking System

Nizam M. Meah, MD

This year’s Nobel Prize in economics was issued to three US professionals who specialized on Bank Runs; i.e. when customers are on an economic panic thinking that their bank is about to fail and lose trust in banking system. These economists also explored the role of US Federal Reserve Bank or simply FED in such a situation and their conclusion is very positive for the FED.

But the history of FED is nothing short of stormy and bitter rivalry in the United States: our founding fathers in general were vigorously against a central banking system since in the pre-independence era, Colonial Power Britain tried to impose control over the colonies by Bank of England, yes, the same famed BOE that you hear about regarding the financial crisis of current UK.

After independence of the USA the First Bank of US was created in 1791 charter signed by our first President George Washington, the charter of which expired in 1811 and Congress did not renew it, so the First Bank of USA died.

In 1816 Second Bank of US was chartered and Andrew Jackson was elected President in 1829 who called this Bank as “the den of serpents and corruption”. Jackson embroiled himself in a bitter political fight with other leaders and Congress leaders on this issue and this ultimately killed the Second Bank of US in 1836. 

Then came the Era of “Free Banking” in the USA: 1836-1862- we had no central dollar bill, no real treasury notes, many banks had their own bills and own money, and anyone could do anything in short although many States chartered their own bank and there was NO NATIONAL BANK.

Then came the Civil War and in 1863 and effort was underway to create another Central Banking System due to mainly from the need of Civil War: need for a uniform currency and need for Bond or treasury to fund the Civil War.

In 1907 there was another severe economic crisis in US and at that time it was understood that there will lot more economic crisis which could be even worse than this. This realization led to a foundation of a primitive FED system and this concept matured through lots of complex interplay of politics, First World War, and other events and in trying to balance the interest of wealthy corporations, farmers, and other lobbies.

Finally in 1913, current FED or Federal Reserve took shape which was given authority by US Congress to “create or destroy money” as it needed. 

So today what happened to President Andrew Jackson who destroyed the early FED system in USA? He is memorialized and celebrated in our all-important $20 Dollar Bills.

What happened to Bank Of England which our Founding Fathers hated? Over time BOE became the little poodle of US FED system almost running and copying everything from its big brother USA and its vast economic success. Sweet revenge indeed!

Current US dollar bills