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March ¿3, 1949* Dear Jess: In accordance with our telephone conversation I am handing you aere*d.th two copies of tne “Purposes and Functions of the Federal Keserve System. Sincerely yours, M. S. JBccIes. Mr. A. i->. iillard, Vice President, National Association of Broadcasters, 1771 S. Street, N.H. Washington, I). C* VLB: r& purposes Agp jvscnom car m s fkeshal RESERVE SYSTEM In an economic system in which people produce different goods and services in order to make a living, there most be some cosason means of paying for exchanges of goods and services between them. forms this essential function. Money per In this country, our total supply of money consists o f currency Issued by the Treasury and the Federal Be* serve System and deposits subject to check in ccRmercial bank». This money supply needs to be no larger or no smaller than the econcegr re* quires for its exchange of output at a stable level of prices. In order to assure that money supply will always be adjusted to the economy's requirements, the Congress has established an agency known as the Federal Beserve System. The principal purpose of the Federal Beserve System is to regulate the supply and cost o f money. The System tries to do this so as beet to contribute to the maintenance of a high level of em ployment, stable values, and a rising standard of living for all of the people. In order to regulate the supply of bank credit, or money, the Federal Beserve depends chiefly on its ability to increase or de crease bank reserves, which constitute the legally required basis of bank credit, or money, The principal methods the Federal Beserve has for regulating the volume of bank credit are discounts for member banks, purchases and sales of Government securities in the open market, and changes in the reserve requirements of member banks. In addition to these general methods of regulation the Federal Beserve has special powers to regu late the terms on which transactions in stock market securities are - 2 financed and, oc a temporary basis, authority to prescribe terms on which consumer credit may be extended* All national and many State banks are members of the Federal Reserve System. There are twelve Federal Reserve Banks, each serving one of the districts into which the country is divided. The Board of Governors in Washington supervises the workings of the Federal Reserve System and in general is responsible for formulating national credit policies and overseeing their execution. The Federal Open Market Cam- Bit tee, comprising the seven members of the Board end five representa tives elected by the Federal Reserve Bank«, has the responsibility of deciding when and how aaich Government securities to buy or sell in the open market and under what conditions. The Federal Beserve pays out currency in response to the public*s need for money in that form rather then as deposits In banks. It also absorbs unneeded currency as the public redeposits currency holdings at banks. Its operations result in making the entire currency supply elastic. Many service functions are performed by the Federal Beserve System. The Federal Beserve facilitates collection and clearance of checks, acts as fiscal agent for the United States Treasury, and ex ercises supervisory duties with respect to member banks. Each of the Federal Beserve Banks and the Board plays an active role in dissemina tion to the public of information on credit and general economic develop ments* March 22 , 19*9
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