The Federal Reserve

The Federal Reserve System is a complex combination of public and private ownership and direction. It has both centralized and decentralized components. My purpose here is to describe which parts could convert to Federal Councils. The Federal Reserve would probably not change initially. Any changes to the Federal Reserve System would be made by the people through the website of the Legislative Council.

Board of Governors

Currently, Congress oversees the Federal Reserve System. Congress establishes the objectives of the Fed and approves each new member of the Federal Reserve Board of Governors appointed by the President. Seven members serve on the Board of Governors for 14 years each, with the President of the United States appointing a new member every 2 years. Once a member completes a full term, the member may not be reappointed. From these seven members, the President chooses one to be the Chairperson and two to be Vice Chairs. They each serve in those roles for 4 years. This service does not affect their 14-year term.

The Board of Governors is already an independent Federal Council. No changes would be needed except that a new member would be randomly selected from a qualified pool every 2 years instead of being appointed.

The Federal Reserve Act requires that every Governor be selected from a different Federal Reserve District and that Governors should represent the nation's financial, agricultural, industrial, and commercial interests. There are 12 districts. Therefore, the number of members of the council could be changed to 13 with a new member selected every year. The senior member would be the Chairperson. The next two senior members would be the Vice Chairs. To comply with the Federal Reserve Act, candidates in the pool would list the sector and the district that they represent. The next Fed Governor would be randomly selected from the candidates in the district of the vacated chair.

Federal Reserve Banks

The 12 Federal Reserve Banks are private corporations owned by member banks, which earn dividends from the Federal Reserve Banks. The member banks are owned by private individuals. Each Federal Reserve Bank has a board of directors (like any corporation) that oversees its activities. Each board of directors has 9 members, 3 appointed by the Federal Reserve Board of Governors and 6 by the commercial banks that own the stock of that Federal Reserve Bank. Each bank's board of directors chooses a bank president, just as other corporations do. The Federal Reserve Bank president must be approved by the Board of Governors.

As private corporations, the management of the Federal Reserve Banks would not be changed by these proposed amendments to the Constitution. However, the 3 board members currently appointed by the Federal Reserve Board to each board of directors of the 12 Federal Reserve Banks could instead be selected randomly from a qualified pool to change the process from a political process to a democratic process.

Federal Open Market Committee

The Board of Governors does not set US monetary policy unilaterally. The 7 members of the Board of Governors combined with the President of the Federal Reserve Bank of New York and 4 of the other 11 Reserve Bank presidents form the Federal Open Market Committee (FOMC). By law, the FOMC determines its own internal organization. Traditionally, the Chair of the Board of Governors is the FOMC chairperson and the president of the Federal Reserve Bank of New York is vice chair.

The 12 members of the FOMC set our national monetary policy by vote. Their decisions effect the federal funds rate, the assets purchased and held by the Federal Reserve, and public announcements regarding future anticipated monetary policy. All 12 presidents of the Reserve Banks attend FOMC meetings and participate in the discussions, but only the FOMC members vote on policy decisions.

Therefore, the FOMC is already a council with 7 members from the Board of governors and 5 from private banks. Anyone who had a better idea than the current organization could post it as an issue on the Citizen Governance Website of the Legislative Council.

Federal Reserve staff

The Fed employs over 400 Ph.D. economists in 8 divisions to study current economic issues. [9] It may be advantageous to convert the leadership positions in each division to a Federal Council to provide less bias towards a single economic theory and forecast. The new Board of Governors with approval of the Legislative Council would decide if the division leadership should be converted to Federal Councils or if they should remain as staff. In addition, all 400 economists could serve for a given term such as 10 years. Each year, 40 would be replaced by random selection from a pool of qualified economists. The same pool could be used for the leadership position councils.

All economist staff positions require the candidates to have a Ph.D. in economics, finance, or a related discipline. This requirement would apply to the qualified candidate pool as well. [10]