The Federal Reserve Act of 1913 On December 23rd 1913 during the Wilson Administration and after the panic of 1907 the Federal Reserve Act of 1913 was implemented by an act of congress (multied.com 2006, federalreserve.org 2006). Reasons for this act varied and the depth of the Act grew as applications were added. Initially the Federal Reserve Acts’ intent was to create an elastic currency (Whalen 2005). The following is a semi-chronological description of the Federal Reserve Act of 1913. The members of the “Reserve Bank Organization Committee” consisting of the secretary of the treasury, comptroller of the currency, and the secretary of agriculture shall appoint no more than twelve and no less than eight cities to the Federal Reserve Bank cities. To this day the Federal Reserve has twelve regional banks and is headquartered in Washington DC (Whalen 2006). The central banks were to appoint member banks that could only be established as members by following guidelines. “Capital Stock” was paid to the Federal Reserve Bank in a six percent margin per capital stock of the member bank. The act stated “No individual, copartnership, or corporation other than a member
bank of its district shall be permitted to subscribe for or to hold at any time more than $20,000 par value of stock in any Federal reserve bank” (mutlied.com
2006). The capital stock was said to have been distributed in $100 shares. These public stocks were to be recorded weekly at the time the act was implemented by the COB of the member bank. No Federal Reserve Bank can hold more than 20% of its capital stock at any one time (Whalen 2006).
In exchange $32 was paid for each ounce of gold (Whalen 2006). This worked in a two fold manner. The government was able to take gold out of circulation while issuing a currency that had value. Currency in its purest form is a medium of exchange (Whalen 2006). The American Dollar has become a valid medium of exchange almost everywhere in the world. Going to a foreign country one could offer an American form of currency and most likely have an exchange of some form or another made for that currency. So in essence this adoption of the dollar and de-circulation of the gold standard has fulfilled the original intention. Although the American Dollar to date is worth $2,117.48 to 250,000 Japanese yen, an indicator of how the US dollar compares around the world, there are an extensive number of software programs online that can convert US dollars to any other type of currency. I used XE.com to convert the above currency. Section seven of the Federal Reserve Act states that once the Federal Reserve expenses were paid that the stockholders of the bank were to get dividends paid of six percent of public stock where half of the stock was to be paid into a surplus of the Federal Reserve Bank not to exceed half the paid in amount of the public stock. The Federal Reserve Act of 1913 also states that the President appoints with senate approval seven of the members of the Board of governors. Today the Federal Reserve is set up as shown in the following graph.
Open Market Committee
Regional Federal Reserve Banks
Board of Governors
Economic Advisory Council
Savings Banks
(Whalen 2006) With five members on the Board of governors appointed by the President of the United States, the President must “ have due regard to a fair
representation of the different commercial, industrial and geographical divisions of the country” when making the decision (multied.com 2006) . This
includes making two of the five chosen members competent in banking
(mutlied.com 2006). These five members are bound to the Federal Reserve and its duties in order to fulfill their positions. Although this does seem strange not all members of the above chart are bound by the same fulfillment (federalreserve.com 2006). The implementation of the Federal Reserve Act of 1913 did in fact create an elastic currency. Although the stock market crash in the 20’s and 1987 did show that the economy is not stable at any given time. The Federal Reserve is in fact the most powerful banking entity in the world.