An important idea originating from the revolutionary United States is the separation of powers. This idea applies not only to a nation's government, but also to its central banking system. Like the government itself, a central bank requires autonomy from the government while exerting mutual influences. The complementary effect leads to a successful national economy. By analyzing the history and development of the Bank of England, the Bank of Japan and the United States Federal Reserve, we understand the necessary elements and their contribution to the evolution of central banks. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essay The oldest central bank is the Bank of England. Founded in 1694, the structure of the Bank of England reflects its age and history. By an Act of Parliament, the Bank of England opened with Bank of England shares representing the beginning of financed national debt. Nineteen bankers made up the Bank's first staff. Its initial objectives were: to issue banknotes for deposits, to act as a government banker and to manage government bonds (Bank of England). As a precursor to central banking, the original tasks and structure of the Bank of England were fundamental. However, due to various historical events, the Bank of England has undergone a series of reforms since its establishment. Prior to this year (1998), the Bank Act 1946 gave the British Government statutory power over the Bank. The Bank of England Act 1998, in force from 1 June 1998, amended the Constitution and the responsibilities of the Court of Directors. Before this reform, the Bank could only make recommendations on monetary policies (Mishcin 405). The Chancellor of the Exchequer (the equivalent of the US Treasury Secretary) has decided to raise or lower interest rates. The 1998 law weakened the monarchy's control over the central bank and shaped the current structure and obligations. The Bank of England is made up of the Court of Directors which itself contains two subdivisions, the Monetary Policy Committee and the Court Committee. The Crown appoints the Governor of the Court of Directors, two deputy governors and sixteen non-executive governors (Bank of England). Officers serve for a renewable term of five years, while directors serve for a renewable term of three years (Bank of England). The Chancellor of the Exchequer appoints the President of the Court Committee and the four economists of the Monetary Policy Committee (Bank of England). The sixteen non-executive directors form the Court Committee. The Monetary Policy Committee, a more separate entity than the Court Committee, comprises the Governor of the Court, the two Deputy Governors, two Executive Directors of the Bank and the four experts assigned by the Chancellor (Bank of England). Each sector of the Court maintains separate responsibilities that, to some extent, balance influence and authority. The Court of Directors meets at least once a month to handle matters not related to monetary policy. These issues include determining the Bank's objectives and strategies, ensuring positive effects from the Bank's functions and the efficient allocation of the Bank's resources (Bank of England). The Committee examines the performance of the Bank, regulates its financial management and determines the salaries of the Governors and Deputy Governors (Bank of England). The Committee also monitors the work of the Monetary Policy Committee (Bank of England). The Non-Executive Chairman leads the Committee and the Court in the absence of the Governor (Bankof England). This recent restructuring of the Bank of England indicates a trend towards liberalism. Other banks, such as the Bank of Japan, also follow this trend originating from the US banking system. A very influential central bank in the Asian market is the Bank of Japan, or Nippon Ginko. During the Meiji Restoration, the Japanese established their own Bank to avoid serious economic strife in 1882 (Bank of Japan). The Bank of Japan was not originally independent of the government, as ultimate power belonged to the Ministry of Finance. However, as with the Bank of England, political and economic changes have resulted in banking changes. Currently, the Bank of Japan enjoys a largely independent practice. The Bank of Japan Law, promulgated on June 11, 1997 and effective April 1, 1998, describes the organization and powers of the Bank. Leadership of the Bank rests with the Policy Board and its nine members. The Cabinet appoints the Governor, two Deputy Governors and sixteen Deliberative Members (Bank of Japan Law). The Governor and Deputies serve a renewable term of five years (Bank of Japan Law). The entire Board elects one of them to the position of President (Bank of Japan Law). The Cabinet also appoints three or fewer executive auditors for a four-year term (Bank of Japan Law). The Board recommends six or fewer executive directors, with four-year terms, and some directors, with two-year terms, which the Minister of Finance ultimately determines (Bank of Japan Law). The Governor then declares the staff of the Council. This new structure shows progress compared to the old and inefficient one. As with other central banks, the Bank of Japan maintains the function of the national economy. The missions and activities of the Policy Boards include: issuing and managing banknotes, implementing monetary policies, providing settlement services and ensuring the stability of the financial system, treasury and government bond operations, involvement in international affairs and the compilation of economic and research data (Bank of Japan). The Council finally decides on the increase or discount of interest rates. As the "Bank of Banks", the Bank of Japan regulates activities between various financial institutions and government securities. Collectively, Policy Boards' activities attempt to prevent economic decline and, therefore, promote economic growth. The United States Congress created the Federal Reserve System in 1913, after the English and Japanese banking institutions. Some elements of the Federal Reserve nurture the original American ideas of freedom and separation of power. The Fed's structure pioneered other current features of central banks in regulating the national economy semi-independently of the government. The United States Congress was the first to recognize the importance of denying total government control over central bank operations. The Federal Reserve is unique in its composition and segmented responsibilities. The Fed is divided into four major components: the Board of Governors, the Federal Advisory Committee, the Federal Open Market Committee, and twelve Federal Reserve Banks. The President of the United States selects and confirms seven members of the Board of Governors. Each of the twelve Federal Reserve banks has nine directors, three of whom are appointed by the Board of Governors and six of whom are appointed by the thousands of commercial banks. Federal Reserve Bank directors select twelve bankers for Federal Advisory. The Board of Governors, the President of the Federal Reserve Bank of New York, and the Presidents offour other Federal Reserve Banks make up the Federal Open Market Committee. The above individuals collectively allocate their knowledge and experience to current economic issues. The advantages of the Federal Reserve system influence monetary policy. The key tools of monetary policy are reserve requirements, open market operations, interest rates. The Federal Reserve banks set an interest rate that the Board of Governors reviews and determines. The Council also sets, within certain limits, the compulsory reserve ratio. The Federal Open Market Committee directs the open market operations of the FEDS. The twelve Banks also monitor the daily operations of the commercial banks. Such activities include check clearing, currency issuance and withdrawals, and channeling local businesses. The U.S. Federal Reserve System maintains a more diversified structure than the older banks of England or Japan to achieve similar goals for national economic stability. The relationship between each nation's government and its central bank has infinite significance. The Bank of England, the first form, was a model for central banks to follow. However, later institutions, especially the US Federal Reserve system, corrected the errors of the English system and implemented new ideas for a progressive banking structure. Through experience and periods of economic decline, the current central bank organizations of England and Japan follow the path traced by the United States. After understanding the history and organization of each bank, you can analyze the changes made and why the US system has proven its superiority. The states declared independence from England, a common American theme was the separation of powers. Therefore, the Federal Reserve system formulates a quasi-public structure: each governor is appointed by the president of the United States and confirmed by the Senate. To limit the president's control over the Fed and insulate the Fed from other political pressures, governors serve nonrenewable 14-year terms, with a governor's term expiring each January. Governors (many are professional economists) must come from different Federal Reserve districts to prevent the interests of one region of the country from being overrepresented (Mishcin 395). The terms above illustrate the dual effects of government influence on the Fed and vice versa. While no segment holds more power than another, each segment focuses on its own responsibilities. The module applies ideas from government structure to the central bank to ensure a prosperous national economy. The separation of powers results in multiple effects. The executive and legislative branches determine some of the officers of the Federal Reserve. However, the duration of the mandate of the Board of Directors does not coincide with that of the Presidents. Therefore, the political influence of each presidential office does not necessarily affect the length of a governor's term. While the incumbent president indirectly suggests economic policies, the Fed is essentially independent of the government. The Fed also operates internally on a sort of system of checks and balances. Each subdivision of the Fed cooperates in determining and implementing aspects of monetary policy issues. As previously described in the Federal Reserve System, the Fed sectors agree on any necessary changes within the policy tools. Thus, the unique structure of the U.S. central banking system provides a model for banks in other nations. The US system proves to be the most efficient as time goes by.