Why Do We Need a Central Bank? Federal Reserve?

[WhiskeyGirl]

One of the more interesting developments during the current recession is a small but growing drumbeat of criticism of the Federal Reserve System...

The historical myth is that the Fed was created because laissez-faire in banking produced the periodic panics and crises of the late 19th century. In fact, banking during that period was heavily regulated, particuarly with respect to the production of currency. The National Banking System regulations made it very expensive for banks to provide additional currency when the public demanded it, especially during harvest season. Small events in the economy could quickly turn into panics and recessions if the demand for currency jumped. Limits on interstate branching also prevented the banking system from integrating and reducing its exposure to risk. The problems of that era were ones created by existing government regulation, not laissez-faire.

The Fed is better seen as a typical creature of the Progressive Era. Reformers' beliefs in the power of state-sponsored experts meshed with the self-interest of big bankers who saw a closer relationship with the federal government as a way to enhance their profits, with a central bank as an agreed-upon technocratic solution.

The unsurprising result has been more, not less, volatility in the macroeconomy than before the Fed's creation in 1913. We've had one Great Depression, several nasty recessions, decades worth of inflation, and billions wasted interpreting the latest from the Oracle of Greenspan or Bernanke. The late 19th century, even with its flaws, was a period of long-term monetary stability and had no recession that was even close to that of the 1930s.

With more economic historians rightly blaming the Fed for the Great Depression and many current observers rightly noting that its responsibility for the housing bubble and the current recession, it is not surprising that more people are wondering just why we need a central bank. The histories of countries with a strong degree of monetary freedom at various times demonstrate that a central bank is not necessary for a stable economy.

http://www.pbs.org/nbr/blog/2009/10/why_do_we_need_a_central_bank.html

Maybe change means the US should find a better model to manage the currency.   Is the Federal Resere a program that isn't working?  Isn't making things better what change was all about?