Federal Reserve Bank of New York: Difference between revisions

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The Federal Reserve Bank of New York opened for business on November 16, 1914, under the leadership of [[Benjamin Strong Jr.]], who had previously been president of the [[Bankers Trust]] company. He led the bank until his death in 1928. Strong became the executive officer (then called the "governor"—today, the term would be "president"). As the leader of the Federal Reserve's largest and most powerful district bank, Strong became a dominant force in U.S. monetary and banking affairs. One biographer has termed him the "de facto leader of the entire Federal Reserve System".<ref>Lester V. Chandler, ''Benjamin Strong, Central Banker'' (Washington, D.C.: The Brookings Institution, 1958), p. 41.</ref> This was not only because of Strong's abilities, but also because the central board's powers were ambiguous and, for the most part, limited to supervisory and regulatory functions under the 1913 [[Federal Reserve Act]] because many Americans were antagonistic to centralized control.
The Federal Reserve Bank of New York opened for business on November 16, 1914, under the leadership of [[Benjamin Strong Jr.]], who had previously been president of the [[Bankers Trust]] company. He led the bank until his death in 1928. Strong became the executive officer (then called the "governor"—today, the term would be "president"). As the leader of the Federal Reserve's largest and most powerful district bank, Strong became a dominant force in U.S. monetary and banking affairs. One biographer has termed him the "de facto leader of the entire Federal Reserve System".<ref>Lester V. Chandler, ''Benjamin Strong, Central Banker'' (Washington, D.C.: The Brookings Institution, 1958), p. 41.</ref> This was not only because of Strong's abilities, but also because the central board's powers were ambiguous and, for the most part, limited to supervisory and regulatory functions under the 1913 [[Federal Reserve Act]] because many Americans were antagonistic to centralized control.


When the United States entered [[World War I]], Strong was a major force behind the campaigns to fund the war effort via bonds owned primarily by U.S. citizens.<ref>{{Cite book |last=Chandler |first=Lester V. |title=Benjamin Strong, Central Banker |publisher=The Brookings Institution |year=1958 |location=Washington, D.C. |pages=112}}</ref> This enabled the United States to avoid many of the post-war financial problems of the European belligerents. Strong gradually recognized the importance of [[open market operation]], or purchases and sales of government [[Security (finance)|securities]], as a means of managing the quantity of money in the U.S. economy and thus affecting interest rates. This was particularly important at the time because gold had flooded into the United States during and after World War I. Thus, its gold-backed currency was well-protected, but prices had been pushed up substantially by the currency expansion due to the [[gold standard]]-imposed expansion of currency. In 1922, Strong unofficially scrapped the gold standard and instead began aggressively pursuing open market operations as a means of stabilizing domestic prices and thus internal economic stability. Thus, he began the Federal Reserve's practice of buying and selling government securities as monetary policy. [[John Maynard Keynes]], a prominent British economist who had previously not questioned the gold standard, used Strong's activities as an example of how a central bank could manage a nation's economy without the gold standard in his book ''[[A Tract on Monetary Reform]]'' (1923). To quote one authority:
When the United States entered World War I, Strong was a major force behind the campaigns to fund the war effort via bonds owned primarily by U.S. citizens.<ref>{{Cite book |last=Chandler |first=Lester V. |title=Benjamin Strong, Central Banker |publisher=The Brookings Institution |year=1958 |location=Washington, D.C. |pages=112}}</ref> This enabled the United States to avoid many of the post-war financial problems of the European belligerents. Strong gradually recognized the importance of [[open market operation]], or purchases and sales of government [[Security (finance)|securities]], as a means of managing the quantity of money in the U.S. economy and thus affecting interest rates. This was particularly important at the time because gold had flooded into the United States during and after World War I. Thus, its gold-backed currency was well-protected, but prices had been pushed up substantially by the currency expansion due to the [[gold standard]]-imposed expansion of currency. In 1922, Strong unofficially scrapped the gold standard and instead began aggressively pursuing open market operations as a means of stabilizing domestic prices and thus internal economic stability. Thus, he began the Federal Reserve's practice of buying and selling government securities as monetary policy. [[John Maynard Keynes]], a prominent British economist who had previously not questioned the gold standard, used Strong's activities as an example of how a central bank could manage a nation's economy without the gold standard in his book ''[[A Tract on Monetary Reform]]'' (1923). To quote one authority:


<blockquote>It was Strong more than anyone else who invented the modern central banker. When we watch ... [central bankers of today] describe how they are seeking to strike the right balance between economic growth and price stability, it is the ghost of Benjamin Strong who hovers above him. It all sounds quite prosaically obvious now, but in 1922 it was a radical departure from more than two hundred years of central banking history.<ref>Liaquat Ahamed, ''Lords of Finance: The Bankers Who Broke the World'' (2009), p. 171</ref></blockquote>
<blockquote>It was Strong more than anyone else who invented the modern central banker. When we watch ... [central bankers of today] describe how they are seeking to strike the right balance between economic growth and price stability, it is the ghost of Benjamin Strong who hovers above him. It all sounds quite prosaically obvious now, but in 1922 it was a radical departure from more than two hundred years of central banking history.<ref>Liaquat Ahamed, ''Lords of Finance: The Bankers Who Broke the World'' (2009), p. 171</ref></blockquote>