Two example for the modern central banking: The FED And The European Central Bank

The history of which reaches to two hundred and fifty years ago from today, the concept of ?The Central Bank? has greatly changed and developed within the last fifty years. This change has transformed into a development by taking lessons from the Great Depression, a major disappointment that capitalist world experienced, and by many following economical shocks. The FED (Federal Reserve System) in the US, founded as a solution for the bankruptcies lived and accepted as a characteristic of economical life in banking sector, has added new objectives to its beginning ones as time passed. The ?bank of the banks? has focused on the stabilization of the financial system in time. The FED has noticed that the main targets given by Federal Reserve Act such as maximum sustainable output growth, maximum employment and moderate long-term interest rates could only be reached by assuring the Price Stability. In order to achieve these targets given to itself, the FED has altered its tools to a great degree by time. ?The Open Market Operations?, come on the screen as a result of FED?s experiences, has become the most important monetary policy tool, while the policy of Reserves Requirement, the most important monetary policy tool of FED in the early years, has lost its importance. The experiences of the FED has been a source reference in the constitution of the European Central Bank (ECB), the most important institutional structure of a more unified Europe and its monetary policies, on the other shore of Atlantic. The ECB draw a better way by getting lessons from the FED?s painful experiences. Therefore, the ECB is focused on just one economical purpose different from the FED: to ensure the price stability. The structures and the experiences of both central banks give just one message to other central banks: the first priority of the central banks is to ensure the price stability. However, to ensure this objective the central banks must be more independent, more transparent and more accountable on the financial records. The Central Bank of Turkey (CBRT), on its way to become a Member of European Union, seems to get this message especially with the recent reforms on this process as a responsible institution. This thesis analysis the FED and the ECB for the independency, transparency and accountability of the central banks in a comparative way, while investigating both banks from the aspect of their origins, structures, monetary policy tools and strategies. Keywords: Central Bank, FED, European Central Bank, CBRT, Monetary Policy, Exchange Rates Policy, EU Integration.