Rufus Folorunso Akinyooye - St Clements University

met membership qualifications. The entire banking system of the United States is thus in
private hands as the United States government depends on the Federal Reserve System
popularly known as “the Fed” to borrow by issuing its own bond through the Treasury
Department payable to the Federal Reserve. The “Fed” in turn credits the Treasury
authorizing it to print the dollars up to the face value of the bond. This is what it would
use to purchase the U.S. government Bond thereby releasing this volume of money into
circulation. Should the Fed want to reduce the supply of money it sells any of the U.S
government bonds in the open –market to God-knows-who but through a member bank
of the Federal Reserve (Samuelson 1973) whose account the Fed would debit to retire
the face value of the bond sold. This is the Open-Market operation of the Fed and it is
the most powerful in the control of money supply in the economic system of the United
States. The other two methods are the adjustment of the legal reserve ratio of member
banks and the manipulation of the discount rate to regulating of the discount rate to
regulate the money supply.
According to the Encyclopaedia Britannica the early 20 th century was the great era of the
international gold standard. Gold coins circulated in most part of the world; paper
money, whether issued by private banks or by government was convertible on demand
into gold coins or gold bullion at an official price and bank deposits were convertible
into either gold coin or paper currency that was itself convertible into gold. There was
at that time single world money called by different names in different countries. A U.S.
dollar for example was defined as 23.22 grains of pure gold (25.8 grains of gold 0.9000
fineness). A British pound sterling was defined as 113.00 grains of pure gold (123.274
grains of gold 11/12 th fine). In effect one British pound equals 4.8665 U.S. dollars at the
official parity. In a few countries there was the gold-exchange standard under which
the currency was convertible at a fixed price into the currency of usually the British
pound, which was itself convertible to gold.
That was the gold-standard era and under it the quantity of money in each country was
determined by the specie-flow adjustment analyzed by the 19 th Century economists.
Internationally, an inflow of gold into a country triggers a rise in its money supply and
tends to raise prices in that country relative to prices in other countries. Goods from