Federal Reserve Bank of New York: Difference between revisions

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: