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
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.
Regional Board of Economic
Federal Governors Advisory
Reserve Banks Council
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
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.