In a press release today the Federal Reserve used its Federal Open Mouth Committee, or rather the Federal Open Market Committee forum to report that “economic activity has continued to pick up.” How nice that Federal Reserve chairman, Ben Bernanke, and a small group of advisors who wield such amazing power over the wealth of millions of Americans as well as those who hold dollars off-shore, would announce such important news.
The Federal Reserve System has monopolistic power in many ways. It is a unique resource of a good we all must use, namely, dollars. Dollars are the intellectual property of the United States, differentiated from other currencies and are regulated by the U.S. government. That is not to say we cannot use other currencies; I suppose we could all go out and purchase Euros but I think we would have a problem buying groceries at Smith’s utilizing any currency other than dollars.
Our textbook points out that Congress established the Federal Reserve System in 1913 as the sole supplier of U.S. currency and “As of December 2004, $170 billion worth of U.S. currency was in public circulation. …It has been estimated that about two-thirds of the U.S. currency circulates outside the United States.” (Png 2007: 200). Png also points out that the Federal Reserve does not have monopolistic power outside of the U.S. where many currencies are used.
The dollar has historically been the benchmark currency in the world and weathered massive counterfeiting operations and retraction of exports. I guess it is due to our past productivity and positive trade associations that the dollar has been able to stay strong. However, with current trade imbalances, the dollar is sinking. Add to that massive deficit spending which further erodes the value of the dollar and the emergence of “better” backed currencies and the dollar is no longer number 1.
The Federal Reserve, in connection with U.S. monetary policy is unchecked by anyone who is not a member of the Board of Governors (or the White House which controls re-appointment and/or Senate needed for confirmation). By raising the amount of money in circulation in the U.S., the Federal Reserve is effectively reducing the value of dollars in today’s pockets, savings vehicles and securities holdings. So when monetary policy is influenced/controlled by tax-and-spend politicians our currency continues to be devalued and we could be in serious trouble.
Monopolies are inefficient and by nature lead to deadweight loss. There is a value for what is lost to consumers and what monopolies fail to take from the table. Does the monopolistic nature of currency mean that it would be more efficient to have more than one type of currency or recognize other nations’ currency?
November 4, 2009 Federal Reserve Bank Press Release