Preethi Kasireddy

The development of the Bretton Woods system in 1958 was a pivotal moment in modern banking. The system established the International Monetary Fund (IMF) and what eventually became the World Bank Group.

Overall, during WWII and its aftermath, the Fed was forced to take a back-seat role, listening to the Treasury instead of making decisions independently.

The collapse of worldwide economies led to the rise of political tensions that kept growing throughout the 1930s, eventually leading to World War II.

The Great Depression was the first great test the Fed faced, and by its own accounts, it did not rise to that challenge. The Fed failed both on the monetary policy side and on the financial stability side.

A part of the Banking Act of 1935, the FDIC was a pivotal act because it restructured the Federal Reserve and financial system as a whole.

After the economic chaos we discussed in the last post, you can understand why it was clear that President Franklin D. Roosevelt (FDR) had a mandate to end the Depression.

In November 1930, the double-whammy punch of banking failures and subsequent panics heralded the beginning of the Great Depression.

Ever since the creation of the Fed, there have been a series of booms and busts that tested its effectiveness and resilience. The first of many such challenges is the stock market crash of 1929.

A central bank is considered a government agency and is the crux of a nation’s financial system. Almost all countries now have a central bank.

Bankers felt it was crucial to have a central bank that provided stability and emergency credit as needed. European states, for example, could expand the supply of money when banks were starting to have low cash reserves, and vice versa. The US did not have such a system.

Through a combination of mismanagement and outright sabotage, none of the country’s earliest banks stood a chance. So what was next?

While England went forward with its implementation of a central bank, many of America’s founding fathers saw central banking as a bad thing.

Paper currency isn’t actually a modern invention. In fact, paper currency was first developed in 7th century China during the Tang dynasty.

Tribes used the concept of money to replace the incredibly inefficient barter system. Bartering is incredibly inefficient as it requires someone to have something of equal value in order to trade for another good.

We use money everyday, but when we really think about being able to define it, the task is harder than one might expect.

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