The Federal Reserve System

Oleh :

 Desy Arisandi

ABSTRACT

Comparing and contrasting the Federal Reserve System of the United Stated with the Central Bank or equivalent institution that performs this role in Indonesia.

Key word : the Federal Reserve System, Central Bank

INTRODUCTION

The Federal Reserve System of the United State performs many of the functions of the Central Bank of other countries. The territory of the United States is divided into twelve Federal Reserve Bank in a major city. Policies of these twelve banks are uniform, however, because they are set by the Board of Governors of the Federal Reserve System.

            It is precisely this Federal Reserve Board that carries out operations similar to those that are the responsibility of Central Banks in Europe, Latin America and elsewhere. For instance, member banks are told by the Federal Reserve Board what current reserve requirements are, that is, the mandatory cash ration of holding to liabilities. Federal Reserve Banks may extend credit to member banks through advances or rediscounts. The rediscounting rate is set by each of the individual member banks. The Board is also empowered to conduct certain open-market operations that can affect the money supply of the United States. For instance, the Board can buy or sell United States Government securities, thus increasing or decreasing the amount of money in circulation. Other open-market interventions of the Federal Reserve Banks include the purchase and sale of investments such as bankers’ acceptances and bills of exchange.

            The Federal Reserve Board can also influence the volume of activity on the Stock Exchanges by setting margin requirements for the purchase of securities. In other word, the Federal Reserve Board can set the percentage of the market price of securities that a buyer must pay when buying stocks or bonds with a loan. Margin requirements thus limit the amount of credit that purchasers of securities may be given to finance their investment activity. By raising or lowering margin requirements, the Federal Reserve Board may limit or expand the volume of stock purchases.

RELATED WORK

Federal Reserve System (also known as the Federal Reserve also called the Fed) is the name for the Federal Reserve. Established in 1913 by the Federal Reserve Act, the banking system where there is a judicial (half private and half government) officials who supported the presidency through the FED Board of Governors in Washington, DC.

Federal Open Market Committee

There are 12 representative offices spread Fed main towns in the U.S. is the fiscal agent, each of which there are 9 members of the representative office of the Board. The FOMC also a largest gathering of Fed officials, state finances. In 1863 the U.S. government in its efforts to overcome the financial crisis after the civil war, creating a banking law that was named the National Currency Act. This refers to the standardization of the Federal Reserve when it issued government bonds. In general, every central bank around the country have two main issues, namely the inelastic currency and not liquid its money in circulation. During the last 4 months in the 19th century and early 20th century, the panic-stricken U.S. economy. Panic is the largest event in 1907 which required the government to revise the law on currency values ​​and the level of demand for money. In the following year Congress made the Act Aldrich-Vreeland Act in which there is an emergency financial system and establishes National Monetary Commission as a center of banking and financial reform.

Purpose

The main purpose of establishment of the Fed in the past is to address local bank panic in the U.S., especially in the era of the 1907's.

Now, the general task of the Fed that the Fed is also contained in the Act is as follows:

1.                  Place to overcome the panic bank.

2.                  Perform tasks for the U.S. Central Bank.

3.                Be a counterweight to the institution of private banks & government.

4.                  Money supply Managing State through monetary policy.

5.                  Maintain the stability of the financial system & overseeing the risk of money market system.

6.                Provide financial services such as deposits, government bonds, foreign stocks, which include instrumental in interbank payment system of the country.

7.                  National functions:

a.       Facilitating Payments interstate and internationally.

b.      As a catalyst in the growth of the U.S. economy.

8.                  Regional function: Respond to financial needs in the Americas.

Board of Governors of Fed is an independent Federal agency of government. Board of Governors does not receive funding from Congress, and seven members of Congress elected Council President. Council should be tasked with independent spirit. The Board also gave its report at the White House. Board of Governors is responsible for making monetary policy. Seventh Federal Reserve Board of Governors elected by the President through the Senate. Board members have duration of action for 14 years (except if transferred directly by the President), is a unity. If necessary one person will be re appointed to the Board office during the next 14 years.

For financial investors, the Fed is the absolute pivot of U.S. policy in the account. If you trade currencies like the Forex, you need to know how the characteristics of the Fed from time to time, such as what the current Fed governor, how the U.S. and world economy by the Fed. Although the outline of the Fed's decision is a matter of interest, in certain things such as speech and hearing, the market is able to react very quickly when things like this happen.

EXPERIMENT & RESULT

STATUS OF BANK INDONESIA

as Independent State Institutions

New chapter in the history of Bank Indonesia as an independent Central Bank began when a new law, namely Law no. 23/1999 on Bank Indonesia, declared effective on the date 17Mei 1999. This law gives the status and position as an independent state agency and free from interference Government or other parties. Refuse or ignore the intervention of any kind from any party whatsoever. To further ensure independence, the law has given special status to Bank Indonesia in the constitutional structure of the Republic of Indonesia. As an independent state agency status of Bank Indonesia is not parallel to the State Agency. In addition, the position of Bank Indonesia is also not the same as the Department, because the position of Bank Indonesia  A special status and position is necessary for Bank Indonesia to carry out its role and function as the monetary authority more effectively and efficiently.

A Legal Entity

Bank Indonesia's status as a legal entity either public or civil legal body established by law. As a public corporation of Bank Indonesia is authorized to determine the rules of law which is the implementation of laws that bind the entire public at large in accordance with the duties and responsibilities. As a body of civil law, Bank Indonesia may act for and on behalf of himself in and out of court.

STRATEGIC VALUE VALUE

Competence - Integrity - Transparency - Accountability - Mutual (KITA - Compact)

STRATEGIC GOALS OF BANK INDONESIA

To realize the Mission, Vision and Values ​​Strategic, Bank Indonesia set a medium to long term strategic objectives, namely:

1.                  Maintaining Monetary Stability

2.                  Financial Condition of Bank Indonesia maintains a healthy and accountable;

3.                  Improve the Effectiveness of Monetary Management;

4.                   Improve Healthy Banking System and Effective and Stable Financial System;

5.                   Maintaining Security, Reliability, and Efficiency of Payment System;

6.                   Improve the effectiveness of the Implementation of Good Governance;

7.                  Directing and Monitoring the Effectiveness of Strategic Changes in Bank Indonesia.

OBJECTIVES AND TASKS OF BANK INDONESIA

The sole purpose of

In his capacity as the central bank, Bank Indonesia has one single purpose, namely to achieve and maintain rupiah stability. Stability of exchange rate contains two aspects, namely the stability of the currency's value against goods and services, as well as the stability of the currency against another State. The first aspect is reflected in the growth rate of inflation, while the second aspect is reflected in the development of the rupiah exchange rate against other currencies. The formulation is intended for the sole purpose of clarifying the goal should be Bank Indonesia and the limits of their responsibilities. Thus, the goal is reached or whether this Bank Indonesia will soon be measured easily.

Three Main Pillars

To achieve these objectives the Bank Indonesia is supported by three pillars which are the three areas of its work. The third area of ​​this task is to formulate and implement monetary policy, regulate and maintain the smooth payment system, and regulate and supervise banks in Indonesia. All three need to be integrated so that the goal of achieving and maintaining stability in the rupiah can be achieved effectively and efficiently.

MONETARY POLICY

Open Market Operations

Open Market Operation (OMO) undertaken to influence the rupiah liquidity in money market, which in turn affects interest rates. OPT done in two ways, namely through the sale of Bank Indonesia Certificates (SBI) and Rupiah Intervention. SBI sales made through auction, so the discount rate that occurred truly reflects the money market liquidity conditions. While the activities rupiah intervention by Bank Indonesia to adjust the conditions money market, both liquidity and interest rates.

Determination of Statutory Reserves

Currently, the policy set forth in the applicable reserve requirement (GWM) is 5% of funds received by a third party bank, which must be maintained in the relevant bank account at Bank Indonesia. If Bank Indonesia deems it necessary to tighten monetary policy then the reserve must be increased, and vice versa. Role as Lender of Last Resort The Bank Indonesia also serves as a lender of last resort. In performing this function, Bank Indonesia may extend credit or financing based on Islamic principles to bank short-term liquidity difficulties caused by the mismatch in the management of funds. The maximum loan term of 90 days, and bank loan recipients are required to provide high-quality collateral and liquid securities with a value at least equal to the loan amount.

Role as Lender of The Last Resort

Bank Indonesia also serves as a lender of last resort. In performing this function, Bank Indonesia may extend credit or financing based on Islamic principles to bank short-term liquidity difficulties caused by the mismatch in the management of funds. The maximum loan term of 90 days, and bank loan recipients are required to provide high-quality collateral and liquid securities with a value at least equal to the loan amount.

Exchange Rate Policy

The exchange rate is commonly called the exchange rate, have an important role in order to achieve monetary stability and to support economic activity. A stable exchange rate is needed for the creation of a conducive environment for increased business activities.
Broadly speaking, since 1970, Indonesia has implemented three exchange rate system, the system of fixed exchange rates from 1970 to 1978, floating exchange rate system since 1978, and the free floating exchange rate system (free floating exchange rate system) since August 14, 1997. With the enactment of this latter system, the exchange rate is completely determined by the market so that the prevailing exchange rate is really a reflection of the balance between the forces of supply and demand. To maintain exchange rate stability, Bank Indonesia at certain times in the sterilization of foreign exchange market, especially in times of excessive exchange rate volatility.

Management of Foreign Exchange Reserves

Foreign reserves is a net position of the Government's foreign assets and foreign exchange banks, which must be maintained for the purposes of international transactions. In managing foreign exchange reserves, the Bank Indonesia prefer the attainment of the objectives of liquidity and safety than high profits. Nevertheless, Bank Indonesia still considering developments in the international market, so there is a possibility of a shift in portfolio composition of the placement of foreign exchange reserves. The optimal management of foreign reserves, Bank Indonesia introduced a system of diversification, both by type of foreign currency or by type of investment securities. In this way is expected to decline in the value of one currency can be compensated by other types of currency or other placements that have better value.

Credit Program

By Bank Indonesia as the status of an independent monetary authority, the credit program that has been done next is beyond the scope of the tasks of Bank Indonesia. Duty credit program will be conducted by State-Owned Enterprises (SOEs) are appointed by the government. Task shifting is intended to enable Bank Indonesia to focus more attention on the achievement of monetary targets and in order to create a better division of tasks between the government and Bank Indonesia.

CONCLUSION

Bank of America, called the Federal Reserve or The Fed, also perform the same steps after realizing centralized planning to make the gap between regions or their state. The Fed took more than 10 years to realize the regionalized central banking. There is nothing special in the inaugural speech helm the new Federal Reserve, Bernanke, last week. World waiting a few weeks since he received the baton of Alan Greenspan of the Fed as an anti climax. Eagerly waiting for the real world would change the style and substance in the Federal Reserve under Ben Bernanke. However, Bernanke's speech is just flat still get attention and be a reference. That's the central bank. Always the center of attention. In Indonesia was actually the same thing we feel, albeit with different levels in the United States. And indeed there are significant differences in terms of roles and responsibilities of central banks in the U.S. than in Indonesia. The law of the Federal Reserve explicitly delineate the roles and responsibilities of the Fed in maintaining economic growth. In Indonesia the role and responsibilities of the principal central bank is fighting inflation. Bank Indonesia's success is measured primarily by the stability of prices and the consumer price index indicated rupiah. Within the framework of initiatives that attract us refer to Bank Indonesia Governor who termed regionalized central banking. In the author's view, the initiative could be compared with the paddle once grabbed two stone. On the one hand the traditional roles and responsibilities of the central bank remains well-run, on the other hand, Bank Indonesia will expand its contribution to regional economic development.
The initiative was cored efforts to transform the role and responsibility of Bank Indonesia, especially all the branches in the region, amounting to 37 pieces, to further empower the local economy. This is in line with the development of regional autonomy, which has entered its sixth year. That's why he decided it was time for Bank Indonesia to change. The existence of branches of the Bank should be made more relevant with state and dynamics of the economy.

REFRENSI

Federal Reserve (The Fed), Bank Sentral Amerika Serikat

http://www.investasi-saham.com/2010/12/federal-reserve-the-fed-bank-sentral-amerika-serikat/ tanggal 15 Mei 2012

Stillman, David (2000). English for Banking and Finance. Singapore : McGraw-Hill, Inc