Central Banks and Federal Reserve Banks PDF

# MODULE 2 - CENTRAL BANK OF THE PHILIPPINES ## CENTRAL BANK ### HISTORY OF CENTRAL BANK - In 17th century, Swedish Riksbank is the first institution recognized as a central bank. It was built in 1668 as a joint stock bank. - In 1694, The Bank of England was introduced and it is called "the most fa...

# MODULE 2 - CENTRAL BANK OF THE PHILIPPINES ## CENTRAL BANK ### HISTORY OF CENTRAL BANK - In 17th century, Swedish Riksbank is the first institution recognized as a central bank. It was built in 1668 as a joint stock bank. - In 1694, The Bank of England was introduced and it is called "the most famous central bank of the era". - At the turn of 20th century, The Federal Reserve System was created to consolidate various instruments for currency and also to provide financial stability. - Banquet de France was created by Napoleon in 1800 to foster economic recovery due to the recession of the revolutionary period. - Federal Reserve was created by the Congress in 1913. - Bank of Canada was built in 1935 to standardized money production. - After the WW2, German Bundesbank was reestablished. - All of the eurozones central bank was replaced by European central bank in 1998. ### HOW CENTRAL BANKS WORKS? - Central Bank was the only one to print bank notes and put them into circulation and also they have the right to withdraw the banknotes and destroy them. - It conducts Monetary Policy by adjusting the supply of money to achieve economic growth. Central Bank's goal is to keep stabilize nation's currency and to prevent the inflation. - The main purpose of Monetary Policy is to maintain the price stability. - The purpose of open market operations is to guide the short-term interest rates. - Central Bank are responsible for the administration of the gold and currency reserves of the states. ### THE FUNCTION OF CENTRAL BANK TO THE ECONOMY There are four functions of Central Bank to the economy. This are the Base Rate, Open Market Operations, Reserve Requirements and Foreign Exchange Reserves. - **Base rate** - It sets the rate in which the commercial bank can borrow to the central bank. For the commercials orgs, it becomes more expensive by increasing the rate. - **Open Market Operation** - It involves the central bank by creating money and purchasing financial assets. - **Reserve Requirements** - This is the central bank regulation that sets a minimum amount that the commercial bank must to hold a certain ratio of their liabilities. - **Foreign Exchange Reserves** - This is the foreign currency that held by the country's central bank. This will help stabilize fluctuations in the foreign exchange market. ## CENTRAL BANKS AND FEDERAL RESERVE BANKS AROUND THE WORLD ### THERE ARE EIGHT MAJOR CENTRAL BANKS TODAY: 1. **US Federal Reserve Bank (US)** - Was Establish December 23, 1913 - The Federal Reserve, commonly known as the Fed, is the central bank of the United States. It is probably the most influential central bank in the world. Since the US dollar is used for approximately 90% of all currency transactions in the world, the influence of the Fed has a profound impact on the valuation of many currencies. - The Fed is made up of three distinct groups: - **The Board of Governors:** This group operates independently of the United States government, but reports directly to Congress, which oversees the Federal Reserve. - **The Federal Reserve Banks:** This group consists of 12 regional banks that oversee different parts of the country. These are found in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. Banks are supervised by the Fed's board of directors. - **The Federal Open Market Committee:** This group is also known as the FOMC and is made up of the members of the board, the 12 presidents of the reserve banks. The FOMC meets eight times a year to discuss general economic conditions, financial system stability, and monetary policy. 2. **European Central Bank (EUR)** - The European Central Bank (ECB) was established in June 1, 1998. The governing council of the ECB is the group that decides on changes to monetary policy. The council consists of six members of the executive board of the ECB, plus the governors of all the national central banks from the 19 Eurozone countries. - The ECB Council meets biweekly, but political decisions are usually taken in meetings accompanied by a press conference. These meetings take place 11 times a year. 3. **Bank of England (GBP)** - The Bank of England (BOE) is publicly owned, which means that it is subordinate to the British people through Parliament. It was founded in July 27, 1694 and is often touted as one of the most effective central banks in the world. - The Bank's Monetary Policy Committee is made up of nine members, made up of the governor, three deputy governors, and a chief economist four external experts. The Bank's Monetary Policy Committee meets eight times a year to announce its policy. 4. **Bank of Japan (JPY)** - The Bank of Japan (BOJ) began operating in October 10, 1882. Its job is to maintain price stability and ensure the stability of the financial system. This makes inflation the main focus of the central bank. Since Japan is highly dependent on exports, the BOJ has an even more active interest than the ECB in preventing too strong a currency. - The Bank's Monetary Policy Committee is made up of the governor, two deputy governors, and six other members. It meets eight times a year. 5. **Swiss National Bank (CHF)** - Establish on January 16, 1906 - The Swiss National Bank is an independent bank responsible for the country's monetary policy. Like Japan and the euro zone, Switzerland is also highly dependent on exports. This means that the SNB has no interest in its currency becoming too strong. Therefore, their general tendency is to be more conservative when it comes to rate hikes. - The bank has a committee of three people that decides the interest rates. Unlike most other central banks, the SNB sets the interest rate band and not a specific target rate. The bank committee meets quarterly to ensure the bank is meeting its mandate 6. **Bank of Canada (CAD)** - Created on March 1935 - Monetary policy decisions within the BOC are made by consensus of the Governing Council, which is made up of the bank's governor, the bank's deputy governor, and four deputy governors. The Board of the Bank of Canada meets eight times a year. 7. **Reserve Bank of Australia (AUD)** - Establish on January 14, 1960 - The RBA's Monetary Policy Committee is made up of the central bank governor, the lieutenant governor, the secretary to the treasurer, and six independent members. These people are appointed by the federal government. - The committee meets 11 times a year, generally the first Tuesday of each month, except January. 8. **Reserve Bank of New Zealand (NZD)** - Founded on 1934 - New Zealand's economy and monetary policy are overseen by the Reserve Bank of New Zealand (RBNZ). - Unlike other central banks, final decision-making power over monetary policy rests with the central bank governor. The Bank Committee meets eight times a year. ### THE BOTTOM LINE In summary, although they may have different objectives, structures, and schedules, their mandates are generally the same. That means ensuring the economic prosperity of your nations, overseeing the financial system, and controlling their currencies. These banks often work together to ensure that the world economy is kept under control. ## 12 FEDERAL RESERVE BANKS 1. **BOSTON** - **Kenneth C. Montgomery** Interim President and Chief Executive Officer Federal Reserve Bank of Boston - Kenneth C. Montgomery is Interim President and Chief Executive Officer. 2. **NEW YORK** - **John C. Williams** President Federal Reserve Bank of New York - John C. Williams took office on June 18, 2018, as the 11th president and chief executive officer of Federal Reserve Bank of New York. In that capacity, he serves as the vice chairman and a permanent member of the Federal Open Market Committee. 3. **PHILADELPHIA** - **Patrick T. Harker** President Federal Reserve Bank of Philadelphia - Patrick T. Harker took office on July 1, 2015, as the 11th president and chief executive officer of the Third District, Federal Reserve Bank of Philadelphia. 4. **CLEVELAND** - **Loretta J. Mester** President Federal Reserve Bank of Cleveland - Loretta J. Mester took office on June 1, 2014, as the 11th president and chief executive officer of the Fourth District, Federal Reserve Bank of Cleveland. In 2021, she serves as an alternate voting member of the Federal Open Market Committee. 5. **RICHMOND** - **Thomas I. Barkin** President and Chief Executive Officer Federal Reserve Bank of Richmond - Thomas I. Barkin took office on January 1, 2018, as the eighth president and chief executive officer of the Fifth District, Federal Reserve Bank of Richmond. In 2021, he serves as a voting member of the Federal Open Market Committee. 6. **ATLANTA** - **Raphael W. Bostic** President Federal Reserve Bank of Atlanta - Raphael W. Bostic took office on June 5, 2017, as the 15th president and chief executive officer of the Sixth District, Federal Reserve Bank of Atlanta. In 2021, he serves as a voting member of the Federal Open Market Committee. 7. **CHICAGO** - **Charles L. Evans** President Federal Reserve Bank of Chicago - Charles L. Evans took office on September 1, 2007, as the ninth president and chief executive officer of the Seventh District, Federal Reserve Bank of Chicago. In 2021, he serves as a voting member of the Federal Open Market Committee. 8. **ST. LOUIS** - **James Bullard** President Federal Reserve Bank of St. Louis - James Bullard took office on April 1, 2008, as the 12th chief executive of the Eighth District, Federal Reserve Bank of St. Louis. He is currently serving a full term that began March 1, 2021. In 2021, he serves as an alternate voting member of the Federal Open Market Committee. 9. **MINNEAPOLIS** - **Neel Kashkari** President Federal Reserve Bank of Minneapolis - Neel Kashkari took office January 1, 2016, as the 13th president and chief executive officer of the Ninth District, Federal Reserve Bank of Minneapolis. 10. **KANSAS CITY** - **Esther L. George** President Federal Reserve Bank of Kansas City - Esther George took office on October 1, 2011, as the ninth president and chief executive officer of the 10th District, Federal Reserve Bank of Kansas City. In 2021, she serves as an alternate voting member of the Federal Open Market Committee. 11. **DALLAS** - **Meredith Black** Interim President Federal Reserve Bank of Dallas - Meredith Black is Interim President. 12. **SAN FRANCISCO** - **Mary C. Daly** President Federal Reserve Bank of San Francisco - Mary C. Daly took office on October 1, 2018, as president and chief executive officer of the 12th District, Federal Reserve Bank of San Francisco. In 2021, she serves as a voting member of the Federal Open Market Committee. ## CENTRAL BANKS DEVELOPMENT