Reserve bank is a financial institution that has the power to print money and control inflation.
USA: Federal Reserve Bank[edit | edit source]
- The Federal Reserve is a private institution. It is owned by the 12 regional Federal Reserve banks, which are each in turn owned by a combination of regional banks, commercial banks, foreign banks, and miscellaneous individuals who have inherited pieces passed down through generations. (Rockefellers, Rothschilds, etc.)
- The Federal Reserve holds a monopoly on the issuance of currency in the USA. In essence, this is the power to borrow an infinite amount of money at 0%. The dollar bill in your pocket is a 0% loan to the Federal Reserve. The Federal Reserve then uses these 0% loans to purchase income-producing assets. Before 2008, the assets purchased were primarily Treasury debt, which is backed by the taxation power of the US Government. In other words, we are exchanging the property rights to our valuable assets (land, labor, entrepreneurship) for little slips of green paper to buy trinkets with. The government can then tax these valuable assets to pay for our excess. The more we spend, the more the Fed owns.
- If all money created is debt and counts as principal, where does the money come from to pay interest on this debt? It comes from the money that gets printed in the future. This is why inflation is a natural result of our current monetary system.
- Prior the the Emergency Economic Stabilization Act/TARP Act of September 2008, commercial banks were required to hold 10% of deposits as reserves. This placed a limit on the potential amount of money creation at around 9x the original deposit. An obscure clause in the TARP Act changed the reserve requirement to 0%, immediately making the potential money supply infinite.
- The reason for the credit spread blowups of October/November 2008 was because in the same TARP Act the Fed was allowed to pay interest on deposits without publicly stating the interest rate. Before the TARP Act, there was around $20 billion deposited by commercial banks at the Fed. After the TARP Act, deposits immediately jumped 50x to $1 TRILLION. This resulted in a disappearance of demand for risky assets, which led to blowouts in credit spreads.
- As a result of various acts of Congress in 2008, the Federal Reserve now has the authority to buy all sorts of assets (commercial paper, corporate bonds, mortgage loans, etc.). A cynical person would say this essentially allows the Fed to seize all valuable assets in this country directly by exchanging fancy bits of green paper for them without having to go through the intermediate step of coercing the US Government into spending more money and taking on more debt.
- Much of the Fed's activity is not made public because of the use of off-balance sheet vehicles.
- There is debate over the constitutionality of the Fed's various awesome powers.
What does this all mean? This economic crisis will not become a depression. By employing the new tools of monetary policy that the Fed has created for itself (interest on reserves and direct asset purchases), the money supply can be jerked around as if on a string. Initially, this means we will soon experience another period of easy credit and unsustainable economic growth.
Bulgarian National Bank[edit | edit source]
The Bulgarian National Bank(BNB) has been established on 25 January 1879. It is an independent(private) institution responsible for issuing all banknotes and coins in the country, overseeing and regulating the banking sector and keeping the government's currency reserves. The BNB is also the sole owner of the Bulgarian Mint.
The BNB’s independence is guaranteed by its organic Law (LBNB), and by the Treaty on the functioning of the European Union. Since January 1, 2007 the bank is a full member of the European System of Central Banks and actively participates in the decision making process in the area of banking and finance in the European Union. The BNB Governor is a member of the General Council of the European Central Bank.
Canada, Bank of[edit | edit source]
The royal commission, headed by Lord Macmillan, recommended in its report that a central bank be established. A week after the report was made public, the Prime Minister announced that his government would adopt the recommendations.
An appendix to the report, titled "Suggestions as to some of the Main Features of the Constitution of a Central Bank for Canada," became the framework for the Bank of Canada Act, which received royal assent on 3 July 1934. In March 1935, the Bank of Canada opened its doors as a privately owned institution, with shares sold to individuals in the public.
India, Reserve Bank of[edit | edit source]
Reserve Bank of India (RBI) was established in April 1935 during British Reign with a share capital of Rs. 5 crores, with the provisions of the Reserve Bank of India Act, 1934, on the basis of the recommendations of the Hilton Young Commission. The share capital was divided into shares of Rs. 100 each fully paid, and entirely owned by private shareholders in the begining.
After Independence, socialist party took over, and Reserve Bank of India was nationalised in the year 1949. The general superintendence and direction of the Bank is entrusted to Central Board of Directors of 20 members, the Governor and four Deputy Governors, one Government official from the Ministry of Finance, ten nominated Directors by the Government to give representation to important elements in the economic life of the country, and four nominated Directors by the Central Government to represent the four local Boards with the headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Boards consist of five members each Central Government appointed for a term of four years to represent territorial and economic interests and the interests of co-operative and indigenous banks.
As supereme banking authority in the country, the Reserve Bank of India, therefore, has the following powers:
- It holds the cash reserves of all the scheduled banks.
- It controls the credit operations of banks through quantitative and qualitative controls.
- It controls the banking system through the system of licensing, inspection and calling for information.
- It acts as the lender of the last resort by providing rediscount facilities to scheduled banks.