Central Banking in the United States

The United States is economically the most powerful nation in the world today. This is what makes the study of central banking in the United States all the more interesting.

Almost all other countries in the world adopted central banking without any major hassles. However, in the United States, a lot of conundrum took place before central banking could be established.

The founding fathers of America were opposed to the idea of a central bank and they had explicitly mentioned this opposition when Thomas Jefferson called central banks more dangerous than “standing armies”.

The idea of central banking was therefore considered to be unconstitutional and the general population had to be convinced to adopt this concept. In this article, we will trace the history of the three central banks that were set up in the United States.

The First Bank of United States was proposed in the very first meeting of the first congress. Alexander Hamilton, one of the forefathers, believed that a central bank would be indispensible to facilitate the swift transfer of money across states as well as to provide credit to the state governments. However, the idea faced multiple obstacles from other leaders such as Jefferson. Despite Jefferson’s vehement opposition, the First Bank of United States came into existence in 1791 just 15 years after America gained independence.

Jefferson’s opposition was not the only obstacle faced by this bank. The conditions were not rife for banking at that time. There were over 50 different types of French, Spanish, Portuguese and American currencies in circulation at that time. Also, the banks charter was valid only for a limited period of twenty years post which it was supposed to be renewed. The first bank kept expanding its operations during the tenure. Even one year prior to the expiry of the charter, additional branches were opened along the east coast of the United States.