1775-1791: U.S.

Currency
The Continental Congress printed the new nations first paper money as a way to finance the American Revolution. This money was known as continentals. There was so much of this money, which led to inflation, which was only a mild inflation in the beginning, but grew rapidly as the war went on. Eventually, these continentals became worthless.

1791-1811: First Attempt at Central Banking

In 1791, Alexander Hamilton convinced

Congress to open the First Bank of the United States. Its headquarters were in Philadelphia. This was the largest corporation in the nation, and was dominating with big banking and money interests. Many Americans did not agree with the idea of a large and powerful bank. Because of this, when the charter for the bank expired, Congress refused to renew it.

1816-1836: A Second Try Fails

By 1816, the idea of a central bank was begin discussed again. Congress agreed to charter the Second Bank of the United States. However in 1828, when Andrew Jackson was elected president, he vowed to get rid of it. His attack on the banker controlled power touched many Americans. When the Second Banks charter expired in 1836, it was not renewed.

1836-1865: The Free Banking Era

State-chartered banks and unchartered free banks took over during this period. They issued their own currency, which can be exchanged for gold or specie. These banks also started to offer demand deposits to enhance commerce. The New York Clearinghouse Association was created in 1853 to provide a way for the citys banks to exchange checks and settle accounts.

1863: National Banking Act

The National Banking Act of 1863 was passed

during the Civil War. This provided nationally chartered banks, whose notes had to be backed by the U.S. government securities. An amendment to the act required taxation on state bank notes. This created a uniformed currency for the nation. State banks continued to flourish due to the growing popularity of demand deposits.

1873-1907: Financial Panics Prevail

Some measures of currency stability for the

growing nation were established with the National Banking of 1865, bank runs and financial panics continued. In 1893, a banking panic started the worst depression of the U.S. had ever witnessed. The economy didnt stabilized until after the intervention of financial mogul of J.P. Morgan. The nations banking system needed a lot of attention.

1907: A Very Bad Year

In 1907, speculation on Wall Street ended in failure, starting a severe banking panic. Morgan was called again to avert disaster. Most Americans were calling for reform of the banking system. There were growing consensus among all Americans that a central banking authority was needed to ensure a healthy banking system and provide for an elastic currency.

1908-1912: The Stage is Set for Decentralized Central Banking

The Aldrich-Vreeland Act of 1908 was passed

as an immediate response to the panic of 1907. this provided emergency issue during crises. It also established the national Monetary Commission to search for a long-term solution for the nations banking and financial problems. Under the leadership of Senator Nelson Aldrich, the commission came up with a bankercontrolled. In 1912, the election of Woodrow Wilson killed that plan. However, this was only the beginning for a decentralized central bank.

1912: Woodrow Wilson as financial reformer.

Woodrow wilson didnt really know much about

baking and financial issues, he asked for advice from Carter Glass a Virginia rep because he was soon to become chairman of the house committee on banking and finance and parker Willis a professor of economics. Most of 1912 Willis and Glass worked over a central bank proposal. By December 1912 they presented what would become the Federal Reserve Act.

1913: the federal reserve system is born.

From december 1912 to 1913 the glass-willis proposel was debated and edited. President Woodrow Wilson signed the Fedral reserve act into law on 12-23-1913. it was an example of comprimise a decentralized central bank that balanced privet banks and populist sentiment.

1914: Open for Business

Before the new bank could begin operations, the reserve Bank Operating Committee had the task of building a working institution around the bare bones of the new law. By November 16, 1914, the twelve cities chosen as sites for regional Reserve Banks were open for business.

1914-1919: Fed Policy During the War

When WW1 started, U.S. banks continued to operated normally. The greater impact in the United States came from the Reserve Banks ability to discount bankers acceptances. The U.S. helped with the flow of trade goods to Europe. This helped finance the war.

1920s: The Beginning of Open Market Operations:

After WW1, Benjamin Strong recognized that gold no longer served as the central factor in controlling credit. His action to set a recession in 1923 gave clear evidence of the power of the open market operations to influence the availability of credit in the banking system. During this time, the Fed began using open market as a policy tool.

1929-1933: The Market Crash and the Great Depression

In the 1920s, Carter Glass warned the stock

market speculation would lead to dire consequences. In October 1929, the stock market crashed. From 1930-1933, around 10,000 banks failed. Many people blamed the Fed for failing to stem speculative lending that led to the crash, while others argued that inadequate understanding of monetary economics kept the Fed from pursuing policies that could have lessened the dept of Depression.

1933: The Depression Aftermath

Because of the Great Depression, Congress passed the Banking Act of 1933, calling for separation of commercial and investment banking and requiring use of government securities as collateral for the Federal Reserve notes. This Act also established the FDIC. Roosevelt also recalled all gold and silver certificates, ending the gold and any other metallic standard.

1935: More changes to come

The Feds structure was changed including the creation of the Federal Open Market Committee (FOMC) as a separate entity. Following World War II, the employment act added the goal of promising maximum employment to the list of the Feds responsibilities. In 1978 the Humphrey Hawkins Act required the Fed chairman to report to congress twice annually on Monterey policy goals and objectives.

1951: The Treasury Accord

The Federal Reserve System formally committed

to maintaining a low interest rate peg on government bonds. To maintain the pegged rate, the Fed was forced to give up control of the size of its portfolio as well as the money stock. Conflict between the treasury and the Fed came to the fore when the treasury directed the central bank to maintain the peg after the start of the Korean war in 1950.

1970s-1980s: Inflation and Deflation

The 1970s saw inflation skyrocket as producer

and consumer prices rose, oil prices soared and the Federal deficit more than doubled. By August 1979, when Paul Volcker was sworn in as Fed chairman, drastic action was needed to break inflations stranglehold on the U.S economy. Volckers leadership as Fed chairman during the 1980s, though painful in the short term, was successful overall in bringing double-digit inflation under control.

1980: Setting the stage for Financial Modernization

The Monetary Control Act of 1980 required the

Fed to rice its financial services competitively against private sectors providers and to establish reserve requirements for all eligible financial institutions. Following its passage, interstate banking proliferated, and banks began offering interest-paying accounts and instruments to attract customers from brokerage firms.

1990s: The Longest Economic Expansion

After Alan Greenspan took office as the Fed

chairman, the stock market crashed on October 19, 1987. In response, he ordered the Fed to issue a one-sentence statement before the start of trading on October 20: The Federal Reserve, consistent with its responsibilities as the nations central bank, affirmed today its readiness to serve as a source of liquidity to support the economic and financial system.

September 11, 2001

The effectiveness of the Federal Reserve as a

central bank was put to the test on September 11, 2001 as the terrorist attacks on New York, Washington, and Pennsylvania disrupted U.S. financial markets. The Fed issued a short statement reminiscent of its announcements in 1987: The Federal Reserve system is open and operating. The discount window is available to meet liquidity needs.

January 2003: Discount Window Operation Changes

In 2003, the Federal Reserve changed its discount

window operations so as to have rates at the window set above the prevailing Fed Funds rate and provide rationing of loans to banks through interest rates.

2006 and Beyond: Financial Crisis and Response

During the early 2000s, low mortgage rates and

expanded access to credit made homeownership possible for more people, increasing the demand for housing and driving up house prices. Securitization of riskier mortgages expanded rapidly, including subprime mortgages made to borrowers with poor credit records.