Gold Reserve Act

Examples of Gold Reserve Act in the following topics:

• Banking and Finance Reform

  • The act was passed and signed into law the same day.
  • Three-quarters of the banks in the Federal Reserve System reopened within the next three days.
  • The Federal Reserve was required by law to have 40 percent gold backing their cash notes, and thus, could not expand the money supply beyond what was allowed by the gold reserves held in their vaults.
  • Adherence to the gold standard prevented the Federal Reserve from expanding the money supply in order to stimulate the economy, fund insolvent banks, and fund government deficits which could "prime the pump" for an expansion.
  • With the passage of the Gold Reserve Act in 1934, the nominal price of gold was changed from $20.67 per troy ounce to $35.

• Strengthening the Monetary System

  • Every U.S. dollar could be always exchanged for a fixed amount of gold, which meant that the supply of money could be increased only if the reserve of gold increased too.
  • In the aftermath of World War I,  the international balance between gold reserves and paper money was thus dramatically shaken.
  • In June of the same year, more long-term solutions were presented in the Banking Act of 1933 (also known as the Glass-Steagall Act although this term is not precise and usually refers to the provisions of the Banking Act of 1933 that dealt with commercial bank).
  • Some of the provisions of the 1933 Banking Act are still in effect.
  • With the passage of the Gold Reserve Act in 1934, the nominal price of gold was changed from $20.67 per troy ounce to $35 and most of the private possession of gold was outlawed.

• The Economy and the Silver Solution

  • The Sherman Silver Purchase Act was enacted on July 14, 1890 as a United States federal law.
  • Under the Act, the federal government purchased millions of ounces of silver, with issues of paper currency.
  • That plan backfired, as people, mostly investors, turned in the new coin notes for gold dollars, thus depleting the government's gold reserves.
  • After the Panic of 1893 broke, President Grover Cleveland oversaw the repeal of the Act in 1893 to prevent the depletion of the country's gold reserves.
  • While the repeal of the Act is sometimes blamed for the Panic, the Panic was already well underway.

• The Federal Reserve Act

  • President Wilson secured passage of the Federal Reserve Act in late 1913.
  • President Wilson secured passage of the Federal Reserve Act in late 1913, as an attempt to carve out a middle ground between conservative Republicans, led by Senator Nelson W.
  • The final Federal Reserve Act passed in December 1913, and most bankers criticized the plan for giving too much financial control to Washington, while liberal reformers claimed that it allowed bankers to maintain too much power.
  • Wilson named Paul Warburg and other prominent bankers to direct the Federal Reserve.
  • Despite the fact that the Act intended to diminish the influence of the New York banks, the New York branch continued to dominate the Federal Reserve until the New Deal reorganized and strengthened the Federal Reserve in the 1930s.

• Introduction to the Federal Reserve

  • The Federal Reserve System (also known as the Federal Reserve, or the "Fed") is the central banking system of the United States.
  • It was created on December 23, 1913 with the enactment of the Federal Reserve Act, largely in response to a series of financial panics.
  • Congress established three key objectives for monetary policy—maximum employment, stable prices, and moderate long-term interest rates—in the Federal Reserve Act.
  • When the general price level is rising too fast, the Federal Reserve acts to slow economic expansion by reducing the money supply, thus raising short-term interest rates.
  • Describe the primary function and objectives of the Federal Reserve System

• Monetary Policy

  • The beginning of monetary policy was introduced in the late 19th century, where it was used to maintain the gold standard.
  • Within most modern nations, special institutions (such as the Federal Reserve System in the United States, the Bank of England, the European Central Bank, the People's Bank of China, the Reserve bank of India, and the Bank of Japan) exist which have the task of executing the monetary policy, often independently of the executive.
  • In other instances, monetary policy might entail the targeting of a specific exchange rate relative to some foreign currency or gold.
  • For example, in the case of the United States, the Federal Reserve targets the federal funds rate, which is the rate at which member banks lend to one another overnight.
  • The Federal Reserve System acts as the central mechanism for federal intervention in the U.S. economy.

• The Reserve Ratio

  • The reserve ratio is the percentage of deposits that a bank is required to hold in reserves, or funds that are not allowed to be loaned.
  • The required reserve ratio is a tool in monetary policy, given that changes in the reserve ratio directly impact the amount of loanable funds available .
  • For example, a reserve ratio of 20% will result in 80% of any given initial deposit being loaned out and if the process of loaning is assumed to continue, the maximum increase in money expansion specific to an initial deposit at a 20% reserve ratio will be equal to the reserve multiplier 1/(reserve ratio) x the initial deposit.
  • The conventional view in economic theory is that a reserve requirement can act as a tool of monetary policy.
  • The Federal Reserve is charged with maintaining sustainable economic growth.

• Structure of the Federal Reserve

  • The Federal Reserve (the Fed) was designed to be independent of the Congress and the government.
  • The Federal Open Market Committee (FOMC), composed of the seven members of the Federal Reserve Board and five of the 12 Federal Reserve Bank presidents, which oversees open market operations, the principal tool of U.S. monetary policy.
  • Twelve regional Federal Reserve Banks located in major cities throughout the nation, which divide the nation into twelve Federal Reserve districts.
  • The Federal Reserve Banks act as fiscal agents for the U.S.
  • Recall the structure of the Federal Reserve System of the United States

• Reaction and Recession

  • In the months of the 1937-38 recession, the trends reserved rapidly.
  • Others point to the changes in monetary policies introduced by the Federal Reserve that in 1936 doubled reserve requirements and tightened credit requirements  (requiring banks to keep more reserves led to contraction in the money supply).
  • In the fall of 1937, the Housing Act (known also as the Wagner-Steagall Act) introduced government subsidies for local public housing agencies to improve living conditions for low-income families.
  • In February 1938, Congress passed the second Agricultural Adjustment Act (AAA), which authorized crop loans, crop insurance against natural disasters, and large subsidies to farmers who cut back production.
  • The Federal Reserve decreased reserve requirements and the government's intervention in controlling gold reserves already in the country and coming into the country decreased.

• The Exchange Rate Regimes

  • During the 2008 Financial Crisis, the Federal Reserve granted $2 trillion for emergency loans to banks, which would be impossible under a gold standard.
  • Consequently, the Bretton Woods System transformed the U.S. dollar into the international reserve currency.
  • The IMF created Special Drawing Rights (SDRs) in 1969 because IMF officials believed a gold and reserve asset shortage would cause an international crisis.
  • Consequently, SDR certificates become assets to the Federal Reserve.
  • For example, the Federal Reserve pays approximately 14 when this bill enters circulation.