The Federal Reserve: History and Purpose of the Fed

March 23, 2016 | By More
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Federal Reserve History Purpose of the FedAt this point, Financial Literacy Month is over a week away.  It seems a good opportunity to talk about the entity – the Federal Reserve – which is at the backbone of the U.S. financial system.  As money smart consumers, it’s important to understand the history of the Federal Reserve and its role in our monetary system.

Today, we want to offer you a selection of websites to visit to learn some of the details about the history of money in America and the creation of the Federal Reserve.  We think you’ll find the discussion about how money was handled during the Colonial period in America interesting.  (This information is referenced in the Federal Reserve Bank of San Francisco write up in the Tips to Read below.)

In chronology, the Federal Reserve System really isn’t that old.  The Federal Reserve System, created to serve as the central bank in the U.S., was established via the Federal Reserve Act law signed on December 23, 1913.  (As of this writing, the Fed is 103 years old.)  Other points of interest include: (1)

•  In the mid-1800s, around 8,000 state-charted banks existed in America.  And, each financial institution issued its own paper notes.

•  The National Banking Act was passed in 1863.  Why?  Funds were needed to finance the Civil War.  The passage of this Act created a “uniform national currency and permitted only nationally chartered banks to issue bank note.”

•  Since no central banking structure existed, “financial panics and bank runs” created an instable monetary environment.  At this time, if a bank failed, a bank customer lost all their money.  (The FDIC didn’t exist at that time.  The FDIC was not created until June 16, 1933 when President Franklin Roosevelt signed the Banking Act of 1933.) (2)

The Federal Reserve, also referred to as the Fed, is often referenced and discussed in the news.  Take the opportunity to familiarize yourself with the Federal Reserve and its history and purpose.  If you have a student in your life circle, we encourage you to share today’s Post with them.

Tips to Read:

Federal Reserve History,

History and Purpose of the Fed, Federal Reserve Bank of St. Louis

What is The Fed: History, Federal Reserve Bank of San Francisco


Take an opportunity review some other older blogs that are related to the Federal Reserve.

The Federal Reserve and You Video Series

Who is Dr. Janet Yellen?


(1)  What is The Fed: History, Federal Reserve Bank of San Francisco

(2)  History of the FDIC, Federal Deposit Insurance Corporation

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Category: Banking, Money Tips on the Web, New to Banking, Resources & Websites

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