Federal Reserve System

Introduction to Money

The Federal Reserve System is the guardian of the nation's money - regulator, banker, lender, auditor, controller and administrator all rolled into one.

Like other countries, the U.S. has a national bank to oversee its economic and monetary policies. But the Federal Reserve System, known generally as the Fed, is not one bank. It's 12 separate district banks, with 25 regional branches, spread across the country.

Regulator - By authorizing buying and selling of government securities, the Fed tries to balance the money in circulation. When the economy is stable, the demand for goods and services is fairly constant, and so are prices.

Banker - The Fed maintains bank accounts for the U.S. Treasury and many government and quasi-government agencies. It deposits and withdraws funds the way you do at your own bank, but in bigger volume.

Lender - If a bank needs to borrow money, it can turn to a Federal Reserve Bank. The interest the Fed charges banks is called the discount rate.

Auditor - The Fed monitors the business affairs and audits the records of all of the banks in its system. Its particular concerns are compliance with banking rules and the quality of loans.

Controller - When currency wears out or gets damaged, the Fed takes it out of circulation and authorizes its replacement. Then the Treasury has new bills printed and new coins minted.

Guardian - Gold stored in the U.S. by foreign governments is held in the vault at the New York Federal Reserve Bank - to the tune of more than 10,000 tons of it. That's more gold in one place than anywhere else in the world, so far as anyone knows.

Administrator - The Fed is also the national clearing house for checks. It facilitates quick and accurate transfer of funds in more than 20 billion transactions a year.
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