International Origins of the Federal Reserve System

The Federal Reserve Act of 1913 created the infrastructure for the modern American payments system. Probing the origins of this benchmark legislation, J. Lawrence Broz finds that international factors were crucial to its conception and passage. Until its passage, the United States had suffered under one of the most inefficient payment systems in the world. Serious banking panics erupted frequently, and nominal interest rates fluctuated wildly. Structural and regulatory flaws contributed not only to financial instability at home but also to the virtual absence of the dollar in world trade and payments.Key institutional features of the Federal Reserve Act addressed both these shortcomings but it was the goal of internationalizing usage of the dollar that motivated social actors to pressure Congress for the improvements. With New York bankers in the forefront, an international coalition lobbied for a system that would reduce internal problems such as recurring panics, and simultaneously allow New York to challenge London's preeminence as the global banking center and encourage bankers to make the dollar a worldwide currency of record. To those who organized the political effort to pass the Act, Broz contends, the creation of the Federal Reserve System was first and foremost a response to international opportunities.

A valuable book that opens a new perspective on the origins of the nation's most powerful financial institution., According to Broz, opportunities for the U.S. to become an international financial center constituted a major motive in the formation of the Federal Reserve System., Essential reading in upper-division and graduate courses on money and banking and political economy. Broz has contributed an important and, until now, neglected element to the explanation of the origins of the Federal Reserve., If you have an interest in central bank theory, get this book. If you have an interest in macroeconomic history, get this book. If you have an interest in the origin and evolution of political institutions, get this book. Lawrence Broz presents an original and thought-provoking account of the origins of the Federal Reserve System that is a must read for students of central bank theory, history, and policy analysis.... Broz sheds new light on the 'origins' issue.... The International Origins of the Federal Reserve System is as close as possible to an academic 'can't-put-it-down' book. For those whose interest is sparked by the title, you will not be disappointed by this highly readable and original work., This fine book does, as promised, explain the emergence of central banking in the United States. That's value enough, but beyond that, the book provides leverage for handling an important collective action problem in the rationalist account of the creation of institutions.... The functionalism in efficiency explanations of institutions has always been a weakness, for it cannot explain the micro-incentives needed for action. Broz's approach provides a key conceptual road map out of that bind. The argument is of very great interest for understanding current battles over financial institutions around the world. And it is of great interest to students of institutional creation and design more broadly.

J. Lawrence Broz is Associate Professor and Director of Graduate Studies in the Department of Political Science at the University of California, San Diego.