What is the Federal Reserve?

The federal reserve, is the central banking system of the United States and has the authority to control money supply and implement monetary policy. Tools the Fed use to influence money supply include open market operations, for example, quantitative easing, quantitative tightening, or buying and selling government securities (such as treasury bonds) in the open market. 

Established in 1913, the primary function of the Federal Reserve is to promote a healthy and stable economy by controlling inflation, supporting employment, and ensuring the smooth functioning of the financial system. It's main functions involve:

Setting Monetary Policy:  They conduct monetary policy with the primary goal of promoting maximum sustainable employment, stabilising prices, managing inflation, and adjusting interest rates. The Federal Open Market Committee (FOMC), is responsible essentially for setting monetary policy. 

Bank Regulation and Supervision:  They are responsible for regulating banks and other financial institutions ensuring  compliance with laws and regulations under its jurisdiction, essentially overseeing that the necessary rules and regulations are being followed. 

Financial System Stability: Another function of the Fed is to maintain the stability of the financial system as a whole. This means monitoring financial markets, identifying potential risks, and mitigating these any of these risks that could lead to economic crisis. During times of economic stress, the Fed acts as the "lender of last resort," providing liquidity to financial institutions and markets to prevent widespread collapses and chaos. 

Its History
The Federal Reserve System was established by an act of congress, signed into law by ​President Woodrow Wilson on December 23, 1913 in response to a series of financial disasters and banking crises that occurred in the late 19th to early 20th century. It is not an elected body. Following economic crisis, there was a need for a more stable and effective banking system in the United States. Before the Fed was implemented, the US experienced frequent bank failures, a lack of a central authority to regulate the banking industry, and a highly decentralized banking system. Today the Fed is the central banking system of the US. 

Criticisms
The Federal Reserve is required to closely monitor economic conditions and adjust monetary policy accordingly in order to maintain price stability and promote sustainable economic growth. Whether it does though, is highly questionable. Criticisms of the fed include:

A Lack of Accountability
Some argue that the Fed’s independence from direct political control can make it less accountable to the public. Also, its decision-making processes are not subject to direct democratic oversight, so many argue that the Fed's policies do not always align with the interests of the general public.

Disillusionment
Although the Fed is responsible for monitoring and ensuring a healthy economy, wealth inequality is yet pervasive and only worsening. The US dollar is a fiat currency that is considered the world's primary reserve currency only because it is "backed by the good faith and credit of the U.S." However with growing disillusionment in the banking system, this phrase is losing its meaning.

Inflation Concerns
With quantitative easing (QE) and low-interest rates, often comes high inflation. It is debatable on whether the Fed has managed inflation effectively.

Income Inequality: 
QE and lower interest rates disproportionately benefit wealthier individuals and corporations, exacerbating income and wealth inequality. The policies enhance the value of financial assets and benefit those with significant investment exposure, while not benefiting lower or working-class people. Asset price bubbles also arise making assets exclusive to only the wealthy.

Lack of consequence for financial institutions: 
When shielded from consequence, financial institutions are more inclined to abuse their power if they know they will be rescued by the fed in times of trouble. For example, in 2008 when Obama bailed out Wall Street and the Fed played a significant role in this. Despite engaging in predatory lending practices, taking on excessive leverage, and some individuals participating in insider trading and market manipulation, financial institutions were bailed out. This was unfair for the tax payer as the bailout used billions of tax payer dollars to rescue private financial institutions. Ultimately this creates moral hazard as institutions are more likely to engage in irresponsible activities knowing the Fed will intervene when necessary to bail them out. The Fed's actions to provide bailouts or support during financial crises may encourage excessive risk-taking and irresponsible behaviour among financial institutions, knowing they might be rescued in times of trouble.    

A lack of Transparency and Communication
Some call for greater transparency in the Fed's communication. Whenever chairman Jerome Powell makes a speech there is a lot of jargon, ambiguity and things left open to interpretation.Critics argue that the lack of definitive communication can create uncertainty and volatility in financial markets, as investors struggle to interpret the Fed's intentions and policy direction.


More Disillusionment?
People are becoming increasingly disillusioned with the current economic model as there is a growing distrust in sentiment around the centralised banking system and fiat currency. Although these centralised bodies are there to stabilise economies and serve the public it seems that the financial system caters only to the corporate elite and disproportionately benefits financial institutions.  

As a result we see a rise in alternatives to the central banking model. Cryptocurrencies, particularly decentralized ones like Bitcoin, have emerged as alternatives to traditional fiat currencies operating independent of the traditional central banking system. Cryptocurrencies are not controlled by any central authority, and their supply is often fixed or limited, providing a degree of predictability and scarcity. This is why BTC is viewed as a potential future hedge against inflation and challenge to the traditional financial system and how currency is perceived.