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An important idea that the revolutionary United States originated is the separation of powers. That idea applies not only to a nations government but also her central banking system. Like the government itself, a central bank requires autonomy from the government while exercising influences on each other. The complementary effect leads to a successful national economy. In analyzing the history and development of the Bank of England, the Bank of Japan, and the United States Federal Reserve, one understands the necessary elements and their contributions to the evolution of central banks.
The oldest central bank is the Bank of England. Founded in 1694, the Bank of England's structure reflects its age and history. By an Act of Parliament, the Bank of England opened with the Bank of England Stock which represented the beginning of the Funded National Debt. Nineteen bankers comprised the Banks first staff.
Its initial objectives were to: issue notes for deposits, act as the banker to the Government, and manage government securities (Bank of England). As the forerunner for central banks, the Bank of England's original tasks and structure were fundamental. However, due to various historical events, the Bank of England has undergone a number of reforms since its establishment. Prior to this year (1998), the Bank Act of 1946 gave the English government statutory power over the Bank. The Bank of England Act 1998, effective June 1, 1998, altered the Constitution and the Court of Directors responsibilities.
Before this reform, the Bank could only make recommendations on monetary policies (Mishcin 405). The chancellor of the Exchequer (equivalent to the U. S. Secretary of the Treasury) decided on raising or lowering interest rates.
The 1998 Act weakened the monarchy's control over the central bank and formed the current structure and obligations. The Bank of England consists of the Court of Directors which in turn contains two subdivisions, the Monetary Policy Committee and the Committee of the Court. The Crown appoints the Court of Directors Governor, two Deputy Governors, and sixteen Non-Executive Governors (Bank of England). The executives serve five-year renewable terms while the Directors serve three year renewable terms (Bank of England). The Chancellor of the Exchequer designates the Chairman of the Committee of the Court and the four economists of the Monetary policy Committee (Bank of England). The sixteen Non-Executive Directors form the Committee of the Court.
The Monetary Policy Committee, a more separate entity than the Committee of the Court, comprises the Courts Governor, the two Deputy Governors, two Bank Executive Directors, and the four experts assigned by the Chancellor (Bank of England). Each sector of the Court maintains separate responsibilities which, to an extent, balances influence and authority. The Court of Directors meets at least once a month to manage non-monetary policy affairs. Such affairs include determining the Banks objectives and strategies, guaranteeing positive effects from Bank functions, and efficiently allocating the Banks resources (Bank of England).
The Committee reviews the Banks performance, regulates its financial management, and determines the Governors and Deputy Governors salaries (Bank of England). The Committee also checks the performance of the Monetary Policy Committee (Bank of England). The Non-Executive Chairman leads the Committee and the Court in case of the Governors absence (Bank of England). This recent restructuring of the Bank of England signifies a trend towards liberalism. Other banks, such as the Bank of Japan, also follow this trend originated by the United States banking system. A highly influential central bank in the Asian market is the Bank of Japan, or Nippon Ginko.
During the Meiji Restoration, the Japanese established their Bank to avoid severe economic struggles in 1882 (Bank of Japan). The Bank of Japan was not originally independent of the government, as ultimate power belonged to the Ministry of Finance. However, as with the Bank of England, political and economic changes have translated into banking changes. Presently, the Bank of Japan enjoys a substantial independent practice.
The Bank of Japan Law, promulgated on June 11, 1997 and effective April 1, 1998, describes the Banks organization and powers. Leadership of the Bank resides upon the Policy Board and its nine members. The Cabinet appoints the Governor, two Deputy Governors, and sixteen Deliberative Members (The Bank of Japan Law). The Governor and Deputies hold five-year renewable terms who (The Bank of Japan Law). The entire Board elects one of them to the Chairman position (The Bank of Japan Law). The Cabinet also appoints three or less Executive Auditors for four-year terms (The Bank of Japan Law).
The Board recommends six or less Executive Directors, four-year terms, and a few Advisors, two-year terms, whom the Minister of Finance ultimately determines (The Bank of Japan Law). The Governor then declares the Boards staff. This new structure reveals progression from the older, inefficient one. As with other central banks, the Bank of Japan maintains the function of the nations economy. The Policy Boards missions and activities include: the issuance and management of bank notes, the implementation of monetary policies, the providing of settlement services and ensuring the stability of the financial system, the operations of treasury and government securities, involvement in international affairs, and the compilation economic data and research (Bank of Japan). The Board ultimately establishes the increase or discount of interest rates.
As the "Bank of banks, " the Bank of Japan regulates activities among various financial institutions as well as government securities. Collectively, the Policy Boards activities attempt to prevent economic decline and, thus, promote economic growth. The United States Congress created the Federal Reserve System in 1913, after the English and Japanese bank establishments. Elements of the Federal Reserve harbor the original American ideas of freedom and power separation. The Feds structure trail-blazed other current central banks traits in regulating the national economy semi-independently of the government. The U.
S. Congress was the first to recognize the importance of denying total government control over the central banks operations. The Federal Reserve is unique in its make-up and its segmented responsibilities. The Fed divides into four major components: the Board of Governors, the Federal Advisory Committee, the Federal Open Market Committee, and twelve Federal Reserve Banks. The U. S.
President selects, and the Senate confirms, seven members of the Board of Governors. Each of the twelve Federal Reserve Banks have nine directors, three of whom the Board of Governors appoints and six of whom the thousands of commercial banks. The Federal Reserve Banks directors select twelve bankers to the Federal Advisory. The Board of Governors, the president of the New York Federal Reserve Bank, and the presidents of four other Federal Reserve Bank constitute the Federal Open Market Committee. The individuals above collectively allocate their knowledge and experience to current economic issues. The advantages of the Federal Reserve System affect monetary policy.
The key tools of monetary policy are reserve requirements, open market operations, interest rates. The Federal Reserve banks establish an interest rate which the Board of Governors reviews and determines. The Board also sets, within limits, the reserve requirement ratio. The Federal Open Market Committee directs the FEDS open market operations. The twelve Banks also monitor the commercial banks day-to-day operations. Such activities include check clearing, currency issuance and withdrawals, and analyzing local busines.
The U. S. Feder...
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