Role Of Federal Reserve In Payments System
Abstract
The topic of this review paper is to provide an analysis of the role the Federal Reserve System plays in the nation’s payment mechanisms. The scope of this paper is to provide a synopsis of the Federal Reserve’s evolvement over time in response to the new emerging payment needs of society. The subtopics that will be addressed in this paper are as follows: a historical perspective of the Federal Reserve’s role in the payment system, the role of the Federal Reserve as facilitator in the payment mechanisms, the impact technology has had on the role of the Federal Reserve in the payment system, and future trends and developments that may affect the role of the Federal Reserve. A variety of sources have been used, selected based on their academic contribution and relevance to the subject.
Historical Perspective
The Federal Reserve System was founded in 1913 by Congress, as a much needed solution to the unrestricted waves of financial panics, bank failures, and business bankruptcies that had plagued the nation. Specifically, the role of the Federal Reserve in the payment system emerged out of the ashes of the 1907 crisis, when widespread payment disruptions occurred, due to some banks and clearinghouses refusal to clear checks drawn on other banks. It became evident therefore that establishing a nationwide check-clearing system was critical to providing not only an elastic currency, but also an efficient and equitable check-collection system. The foundation principles of the institution that would become the Federal Reserve System were established by the National Monetary Commission, whose work culminated with the passage of the Federal Reserve Act and ultimately, the signing by President Woodrow Wilson in December 1913.
Composed of the Board of Governors and twelve regional Federal Reserve Banks, the Federal Reserve was created to bear the responsibility of supervising and...
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