The Federal Reserve Act

And why Bitcoin is necessary

The United States Federal Reserve System was created in 1913 through the Federal Reserve Act, a piece of legislation that fundamentally transformed the financial landscape of the modern world. Since then, several subsequent laws and amendments have expanded the Federal Reserve’s power, giving it control over interest rates, liquidity, and credit creation on a scale previously unimaginable. Understanding the origin of this power is crucial to appreciating why Bitcoin exists and why it may be the most important monetary invention of the modern era.

The Federal Reserve Act of 1913

The Federal Reserve Act was signed into law by President Woodrow Wilson on 23 December 1913, during the final hours before the Christmas recess. Officially, its goal was to provide the United States with a safer, more flexible, and more stable monetary and financial system. In practice, it created a central banking system with exclusive authority to issue currency, regulate banks, and act as a lender of last resort.

The act established the Federal Open Market Committee (FOMC), the central body that sets monetary policy. It also allowed for the creation of Federal Reserve Notes, now commonly known as US dollars, which replaced gold and silver as redeemable money. The introduction of these notes marked the beginning of a move away from commodity money and towards fiat currency, a process that would be completed in the decades that followed.

The Banking Act of 1933 and the New Deal era

In response to the Great Depression and the banking collapse of the early 1930s, Congress passed the Banking Act of 1933, which included the Glass-Steagall provisions. While these rules separated commercial and investment banking, the act also significantly enhanced the Federal Reserve’s powers by increasing its ability to regulate member banks and control credit conditions.

During this time, Executive Order 6102 was signed, effectively banning the hoarding of gold and forcing Americans to exchange their gold for paper dollars. This executive action, followed by the Gold Reserve Act of 1934, further consolidated power in the hands of the Federal Reserve and severed the direct tie between money and precious metals.

The Employment Act of 1946 and the dual mandate

After World War II, the Employment Act of 1946 reshaped the Federal Reserve’s purpose by directing it to promote maximum employment and stable prices. This dual mandate gave the central bank a broader remit and more influence over the economy, particularly in manipulating demand through interest rate policy and money creation.

However, the Federal Reserve was still expected to cooperate with the Treasury to maintain low interest rates for government borrowing. This policy, known as yield curve control, continued until the early 1950s, when the Fed regained nominal independence in setting interest rates.

The Full Employment and Balanced Growth Act of 1978

Sometimes referred to as the Humphrey-Hawkins Act, this law reaffirmed the Fed’s responsibility to pursue full employment and price stability. It also required the Fed to report regularly to Congress on its policies and economic outlook, introducing more transparency but also reinforcing the idea that the central bank is the primary steering mechanism of the national economy.

Ironically, this act came just one year after the United States had fully severed its last monetary tie to gold. In 1971, President Nixon had closed the gold window, and by 1977, the US dollar had become a pure fiat currency, backed by nothing except trust in government institutions.

Why Bitcoin matters in this context

Bitcoin was created in the wake of the 2008 global financial crisis, a direct consequence of decades of central bank manipulation and credit expansion. While the Federal Reserve’s original mandate was relatively limited, it has evolved into a highly interventionist institution, capable of creating trillions of dollars with a keystroke and distorting every aspect of the economy, from asset prices to interest rates.

Bitcoin offers a different path. It is a decentralised, open monetary protocol governed by mathematics and code, not by politicians or unelected officials. There is no Federal Open Market Committee in Bitcoin. There is no dual mandate. There is only 21 million coins, secured by a global network of independent nodes and miners.

Bitcoin is non-political, non-inflationary, and non-censorable. It cannot be printed at will, cannot be devalued to pay off government debts, and does not require trust in any central authority. This stands in stark contrast to a fiat monetary system that relies on continual intervention, debt monetisation, and, increasingly, financial repression.

Centralisation breeds fragility

Each expansion of the Federal Reserve’s authority—from the original 1913 act to the monetary interventions of recent years—has entrenched a system where economic outcomes depend on central decision-making rather than organic market activity. This is not without consequence. Artificially low interest rates encourage malinvestment. Massive bond-buying programmes distort risk. And unchecked money printing erodes savings and exacerbates wealth inequality.

Bitcoin exists because this system is not sustainable. It is an exit route, a parallel financial system being built in real time. Its rules are known in advance. Its supply is finite. And most importantly, no central banker can change that.

Looking forward

As governments continue to expand monetary and fiscal interventions in the name of economic stability, individuals will increasingly seek alternatives. Bitcoin is not a speculative bet on price appreciation—it is a hedge against systemic failure. It is also a protest, a peaceful revolution against a century of monetary policy that has benefited the few at the expense of the many.

The Federal Reserve was granted its power through a series of acts justified by crises. Bitcoin was born out of one too. But unlike central banks, Bitcoin does not ask for permission, demand obedience, or require belief. It simply runs, block after block, enforcing rules that no one can bend.

In the age of endless monetary experiments, Bitcoin may be the only form of money that still respects restraint.