Federal Reserve System
Purposes of the Federal Reserve System 1. Issuing currency; Federal Reserve Banks issue Federal Reserve Notes, paper currency used in the U. ... monetary system. ... Provides the banking system with a collection of checks. ... Acts as the fiscal agent (provider of financial services) for the Federal government. ... Tools the Fed has to achieve these purposes Three tools of monetary control: open market operations, reserve ratio & discount rate Open market operations consist of the buying of bonds (securities) from, or the selling of them to commercial banks & the public. ... Commercial banks give up part of their holdings of securities (the government bonds) to the Federal Reserve Banks. ... When the Federal Reserve Banks pay for those securities, they increase the reserves of the commercial banks by the amount of the purchase. ... Give up securities to the Federal Reserve Banks and gets in payment a check drawn by the FRB on themselves. ... When Federal Reserve Banks buy securities in the open market, commercial banks’ reserves are increased. ... The commercial banks pay for those securities by drawing checks against their deposits (against their reserve s in FRB).