Federal Reserve Hopes to Make Bank Runs Obsolete

By MARK ANDERSON

The US has experienced eight banking crises going back to just after the Civil War. These proclaimed “panics” often fostered financial changes—sometimes sweeping changes. Prime examples include the major monetary downturns of 1893 and 1907, which many in Congress cited as a major rationale for creating the Federal Reserve System in 1913

That Act ushered in something that America — especially after President Andrew Jackson’s 1832-33 abolition of the corrupt Second Bank of the United States when its 20-year charter had expired — never thought it would see: A private central bank, this time with a seemingly permanent charter, charting the nation’s financial destiny

And the infamous Crash of ’29 ushered in “The Great Depression,” a title that, interestingly enough, belonged to the 1873 “panic” until some 56 years later when widespread bread and soup lines, ultra-rampant farm and home foreclosures and other mounting miseries became the lay of the land. The Crash and subsequent Depression provided irresistible incentives for Congress to pass major legislation, especially the 1933 Emergency Banking Act, which created the FDIC and took the US off the gold standard, a controversial move that some citizens still see as a mistake. Others, though, felt the gold standard stifled economic expansion, arguing instead that money is already backed by all the nation’s natural resources, its credit, and its labor force, and that gold represented idolatry

Those eight “panic” years were: 1873, 1884, 1890, 1893, 1907, 1929, 2008, 2013. The monetary morass in which we’re currently enveloped, replete with frequent Federal Reserve-spawned interest rate hikes that create higher credit expenses and are actually more likely to increase prices rather than reduce them, contrary to popular jargon, likely qualifies as “panic” number 9, sparked by Silicon Valley Bank’s reported failure and subsequent “tremors” elsewhere.

Enter ‘FedNow’

The Federal Reserve is going to introduce its new “FedNow” service in July 2023, to “enable all US banks to offer instantly available funds in real-time payments to their customers,” Fed Chairman Jerome Powell told Congress.

Will FedNow drastically reduce the panic-induced bank runs that, over the decades, have drawn too much money out of the banks at once, forcing temporary or permanent bank closures? With instant funds available and fewer people using cash, such bank runs could become virtually impossible.

Interestingly, the Fed also has been exploring the adoption of a Central Bank Digital Currency. Financial adviser Joe Brown believes FedNow is a back-handed way to implement a CBDC — a concept that’s been expounded upon by Cornell University economist Eswar Prasad, who, as a Brookings Institution senior fellow, has explained that cashless societies may be imminent, and that the Nordic countries are a test case for cashless transactions.

“This infrastructure bypasses a lot of the need for the current banking infrastructure, which is the purpose of a [CBDC],” Brown stated. “Eventually, every single economic participant has an account directly with the Federal Reserve … and then you don’t need any of the decentralized nodes of the financial system, the previously existing banks.

Thus, 110 years after the Fed’s creation, the current “crisis” may take us to a whole new place. Whether it will be equitable, honest and democratic—or exploitative and plutocratic, as President Jackson dealt with 190 years ago—is an open question.

Mark Anderson is a veteran journalist who divides his time between Texas and Michigan. Email him at truthhound2@yahoo.com.

From The Progressive Populist, May 1, 2023

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