Disadvantages of Allowing an Independent Private Bank to Be the One to Implement Monetary Policy

Monetary Policy

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Disadvantages of Allowing an Independent Private Bank to Be the One to Implement Monetary Policy

A monetary policy signifies the procedure undertaken by the government or central bank to control the availability and supply of money, in addition to the number of bank reserves and loan interest rates. The other objectives consist of addressing unemployment problems, stabilizing the economy, and maintaining balance in exchange rates. The monitory policy has to be controlled by the President of the United States Congress. In the United States the Congress sets the monetary policy objectives for the Federal Reserve but provided the central banks independence to attain their objectives. The Federal Reserve is answerable to Congress, the American individuals, and Federal Reserve leaders often to affirm and report to Congress on how the Federal Reserve is managing monetary policy (Husted et al., 2020). It is more advantageous to let the U.S. government print money rather than to allow an independent private bank, like the Federal Reserve, to be the one to implement monetary policy by allowing them to print money at their discretion.

The Congress of the United States has given duties for monetary policy to the Federal Reserve but holds oversight duties for making sure that the Federal Reserve adheres to its legislative directive. The Federal Reserve’s control over monetary policy results from its outstanding capacity to alter the credit conditions and money supply more extensively. In most cases, the Federal Reserve conducts monetary policy by setting a target for the federal funds rate. One of the major disadvantages of allowing an independent private bank, like the Federal Reserve, to be the one to implement monetary policy by allowing them to print money at their discretion is that it can result in inflation. It is a sustained increase in the general level of prices, which is similar to a decline in money’s purchasing power or value. The Federal Reserve can unnecessarily print a lot of money with the aim of making the country rich when they are in control of printing instead of the United States Congress. When the supply of credit or money increases too fast over time, the outcome can be inflammation. When the Federal Reserve attempts to make the nation get richer by printing more money, it rarely works. It is because if each person has more money, prices go up as an alternative, and individuals find they need more and more money to buy a similar amount of goods.

As the printing of money speeds up, prices also upsurge faster, making the nation start to suffer from hyperinflation. In this instance, printing more money lets individuals spend more, which lets firms produce more, so there are more things to purchase and more money to purchase them. The Federal Reserve will simply spread the worth of the existing goods and services around a larger number of dollars (Husted at al., 2020). In the end, doubling the number of dollars doubles prices. If individuals have twice as much money but everything costs twice as much as before, individuals don’t get better off. There will be many resources chasing too few goods. It signifies that each day, goods turn to be unaffordable for ordinary citizens as the salaries they get quickly become worthless. Economically, allowing the Federal Reserve to be the other to implement monetary policy by allowing them to print money at their discretion instead of having the United States government be the one to print the money only upsurges the amount of money circulating in the economy. It makes individuals demand more goods, but if businesses have the same amount of goods, they will respond by increasing prices. If inflation rises, individuals will not be willing to hold bonds because their value will fall. As a result, the government will find it difficult to sell bonds to finance the nationwide debt. They will choose to pay higher interest rates to attract investors. When inflation gets out of hand by Federal Reserve printing money at their discretion without direct control from the President or U.S. Congress, stockholders will not trust the government, making it difficult for the government to borrow anything at all.

The second disadvantage is that it does not guarantee economic recovery. During the recession, not all individuals would have the self-confidence to take advantage of low-interest rates. As a result, it could discourage businesses from expanding. With Federal Reserve being in full control of monetary policy, interest rates can still upsurge, making businesses unwilling to expand their operations, leading to minimum production and ultimately higher prices. Whereas individuals will not manage to afford goods and services, it would take a long period for commerce to recover and even result in them closing up. People will then lose their occupations. Monetary policy is used to aid stability and economic development; having Federal Reserve’s being fully in control will not guarantee that it would aid the society, considering that it also has its set of disadvantages (Fuhrer et al., 2018). When there is no guarantee of economic recovery, its capability to cut rates will not be assured. As a result, confusion and uncertainty will rise. The Federal Reserve cannot totally control the cash supply; this is because it does not control the amount that bankers choose to lend, and also it does not control the amount of money that households choose to hold as deposits in banks. Monetary policy is general and impacts the whole nation. It is more advantageous to allow the President of the United States Congress to control the Federal Reserve’s Monetary policy.


Fuhrer, J., Olivei, G. P., Rosengren, E. S., & Tootell, G. M. (2018). Should the Federal Reserve Regularly Evaluate Its Monetary Policy Framework? Brookings Papers on Economic Activity, 2018(2), 443-517.


Husted, L., Rogers, J., & Sun, B. (2020). Monetary policy uncertainty. Journal of Monetary Economics, 115, 20-36.