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The Central Bank


The Bank of Amsterdam

The honor of the first national bank should be given to The Bank of Amsterdam, founded in 1609. It was the first public bank to offer accounts not directly convertible to coin. As such, it can be described as the first true central bank. The debut of central bank money did not result from any conscious policy decision, however, but instead arose almost by accident, in response to the chaotic monetary conditions during the early years of the Dutch Republic.[1]

Often this honor is given to the Sveriges Riksbank, which began operations in 1668, as it is the first official government bank. However it was only granted in 1701 the rights the print banknotes.[2]

The Bank of England

The War of the Grand Alliance started in 1689 and lasted till 1697 and was fought between the English, Dutch and Austrian Habsburgs on one side and the French on the other. In 1691 Scottish merchant William Paterson suggested the foundation of a national bank to create a perpetual income for the government. Initially the suggestion was to lend a million pounds to the government at 6% (plus 5000 management fee) with the right of note issue. In 1694 the suggestion was revised to 1.2 million pounds at 8% plus 4000 fee. On 27 July 1694 King William III signed the Royal Charter, The Bank of England had been founded. The King explained that the bank was created to 'Promote the public Good and Benefit of our People'. However the bank is a private bank and has been primarily founded to fund the war effort against France.[3]

The First Bank of the United States

In 1763 Benjamin Franklin traveled to London and during a meeting at the British Board of Trade he said:

"In the Colonies, we issue our own money. It is called Colonial Scrip. We issue it in proper proportion to the demands of trade and industry to make the products pass easily from the producers to the consumers. In this manner, creating for ourselves our own paper money, we control its purchasing power, and we have no interest to pay to no one." [4]

The next year, on 1 September 1764, England passed a law that made it illegal for the colonies to use their own currency: Current Act of 1764. [5] This Act is to believed to be one of the main reasons for the American Revolutionary War.

The American Revolutionary War started in 1775 and lasted till 1783 and was an insurrection by which 13 of UK's North American colonies won political independence and became eventually the USA. Benjamin Franklin about this war said:

"The refusal of King George III to allow the colonies to operate an honest money system which freed the ordinary man from the clutches of the money manipulators was probably the prime cause of the revolution."

In 1781 Robert Morris, shipping merchant, suggested a plan for a national bank and submitted it to the Continental Congress. They approved his plan and so The Bank of North America was created. Morris became the Superintendent of Finance, in order to direct the operation of this new bank. Like the Bank of England, this bank was also privately owned and has been primarily been founded to fund the ongoing war. After the ratification of the US Constitution in June 1788 the bank could no longer legally operate under the original given charter.

On 25 February 1791 the First Bank of the United States followed the Bank of North America with a chartered term of 25 years. Alexander Hamilton, first Secretary of the Treasury and one of the Founding Fathers of the United States, believed a national bank was necessary to stabilize and improve the nation's credit, and to improve handling of the financial business of the United States government under the newly enacted Constitution. In 1811 the bank's charter renewal was voted down by US Congress and the bank was dissolved.

Andrew Jackson

The Second Bank of the United States

On 10 April 1816 President James Madison sign the charter into law and the Second Bank of the United States was a fact. The bank had been given a 20 year charter. In December 1829 President Andrew Jackson attacked the bank's legitimacy and therefore both houses of Congress started an investigation into the bank. The outcome was clearly positive for the bank, but rejected by Jackson, who privately characterized the bank as a corrupt institution.
In 1832, after he was reelected, he veto-ed the renewal charter. And on 8 January 1835 it was announced:

"Gentlemen ... the national debt ... is PAID."
As there was no longer a national debt, in 1836 Second Bank of the United States was dissolved.

As the US government had more income then it spend, the surplus money was put in the various state banks. However in the West unregulated Wildcat Banks sprouted and these banks printed large number without being backed by specie. The new frontier created a reckless land speculation. To counter this problem Jackson issued a circular that land officers could only be paid in gold or silver (specie). This eventually led to the Panic of 1837.

This crisis, known as the 'Hard Times of 1837-1843', caused a lot of problems. Many people went bankrupt, unemployment figures raised sharply, banks failed and even some states went bankrupt as they had to bail out the failed banks. The depression spread even to Europe. To deal with the crisis, in 1837, President Martin van Buren suggested to create an Independent US treasury. Initially his plan was rejected in Congress until 4 July 1840 when it was signed into law. Due to the elections later that year and a change in power, the law was repealed again.

Four years later, after the next presidential elections, President James K. Polk committed to revive the act and on 6 August 1846 it was signed into law again.

In 1857 another panic hit the market but it was quite less severe and President James Buchanan said:

“Thanks to the independent treasury, the government has not suspended [specie] payments, as it was compelled to do by the failure of the banks in 1837. It will continue to discharge its liabilities to the people in gold and silver. Its disbursements in coin pass into circulation and materially assist in restoring a sound currency.”[6]

The American Civil War started in April 1861 and lasted till 1865 during which money was needed as wars are expensive. On 25 February 1863 President Abraham Lincoln signed the National Currency Act. The Act had three primary purposes:

  1. create a system of national banks,
  2. to create a uniform national currency, and
  3. to create an active secondary market for Treasury securities to help finance the Civil War (for the Union's side).

Under its provisions a system was established under which the federal government issued charters – essentially a grant of authority to operate under the newly established national bank system – to banks that agreed to meet certain capital and other regulatory requirements.[7]

The Act was mainly the work of Salmon P. Chase (1808-1873), who served as Secretary of the Treasury in President Lincoln's cabinet from 1861 to 1864. Chase was actually Lincoln's opponent for the presidential elections.
In 1877 New York banker John Thompson founds Chase National Bank. He names the bank after, or in honor of Salmon P. Chase.

The Federal Reserve

Over the years more panics occurred: 1873, 1893, 1896 and 1907. To counter these problems and to establish a stable system six men secretly met in November 1910 at the Jekyl Island Club. The clib is located at Jekyl Island, a privately owned island just off the coast of Georgia. During the 9 days together, they wrote a plan that eventually was the foundation of the Federal Reserve Act. The six men included were:

Alltogether these men were good for about 1/6 of the world's wealth at the time. And they were competitors. However instead of battling against each other they decided it would be better to work together and to create a shared monopoly, or in other words a banking kartel. And even to make it worse, they went into partnership with the government.

Their plan was first presented in 1911 to the National Monetary Commission and a year later to Congress. The Aldrich Bill did not get through congress. the Democratic party stated during the election campaign:

"We are opposed to the Aldrich plan for a central bank".

A little while later, with a few minor changes to the plan and with two new names, Democrate Congressman Carter Glass and Democrate Senator Robert Latham Owen, a new bill was presented which did make it through Congress. After the 1912 elections, Woodrow Wilson became President, and he signed the Federal Reserve Act on 23 December 1913. The details of this act resembles closely to the 1910 plan.[8]

The Federal Reserve System is however nothing like it seems to be:
Federal to make it seem like it is a government operation, however it is a private organization.
Reserve to make it seem as if there are reserves, however there are none. Currency is created out of thin air.
System to make it seem like it is not just one bank, but 12 different banks in different regions. To give the impression that the power is not just in Wall Street but in various places. However all is regulated but just 1 entity, the Board of Governors.

Some people did see what had happened and raised their voice. On June 10, 1932, Congressman Louis T. McFadden made a 25-minute speech before the House of Representatives, in which he accused the Federal Reserve of deliberately causing the Great Depression. McFadden also claimed that Wall Street bankers funded the Bolshevik Revolution through the Federal Reserve banks and the European central banks with which it cooperated. On 23 May 1933 he brought formal charges against the Board of Governors of the Federal Reserve. Between 1932 and 1934 he made several further speeches, this part says It all:

“Mr. Chairman, we have in this Country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve Banks, hereinafter called the Fed. The Fed has cheated the Government of these United States and the people of the United States out of enough money to pay the Nation's debt. The depredations and iniquities of the Fed has cost enough money to pay the National debt several times over.” [9]

Unfortunately Louis T. McFadden died on 2 October 1936 after a dose of intestinal flu caused heart failure. It was then also made known that he survived two previous attempts on his life.

Next Story: The Bank of International Settlements (BIS)

[1] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=934871
[2] https://en.wikipedia.org/wiki/Sveriges_Riksbank
[3] https://www.bankofengland.co.uk/about/history
[4] https://www.opednews.com/articles/How-Benjamin-Franklin-Caus-by-Mike-Kirchubel-110711-773.html
[5] https://www.thoughtco.com/currency-act-of-1764-104858
[6] https://en.wikipedia.org/wiki/Independent_Treasury
[7] https://coinweek.com/education/the-civil-war-and-the-national-banking-system-the-birth-of-national-bank-notes/
[8] https://www.federalreservehistory.org/essays/jekyll_island_conference
[9] http://libertyforlife.com/banking/us-mcfadden-re-frb.htm