Individualism and Economic Order - Essay Example

Federal Reserve involves the central banking network of the United States of America (USA); it was established by the Federal Reserve Act on 23rd December 1913.

Discussion

The Federal Reserve System has four major purposes. The first purpose involves making monetary policy in the USA economy. This policy has a direct effect on the money and credit levels; so as to ensure full employment and also stable prices. The second purpose involves regulating operations of banks and major financial organizations, with a view of safeguarding the credit rights of customers (Hayek 213). The third purpose is managing the stability of the financial system and controlling financial market risks. The fourth purpose is to give financial services to the United States government and financial institutions; for example, managing payment systems in the USA.

The Federal Reserve also has unique functions. It addresses the challenge of banking panics; it acts as a last resort lender during a bank run; bank run involves banks borrowing money from other banks. The Federal Reserve is also the central bank of the USA; hence it offers financial services to the government and manages the money supply. The intention of the Federal Reserve is explained through the three monetary objectives which are; ensuring maximum employment levels, moderate interest rates, and stable prices.

The enactment of the Federal Reserve Act has strengthened the economic system. This is because it maintains the national payments system. For the government, it transacts electronic financial transactions, issuing and redeeming securities, and banks treasury cheques (Hayek 277).